HLS Therapeutics Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 6 speakers on the call.

Operator

Good morning, and welcome to the Q1 Fiscal twenty twenty four Financial Results Conference Call for HLS Therapeutics. On this morning's call, we have Craig Millian, Chief Executive Officer and John Hanna, Interim 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. Earlier this morning, HLS issued a news release announcing its financial results for 3 months ended March 31, 2024.

Operator

This news release along with the company's MD and A and financial statements are available on HLS website on SEDAR Plus. Please note the slides company's today's call can be viewed via the webcast, a link to which is available in the company's earnings press release and 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. Risk factors that could affect results are detailed in the company's annual information form, which has been filed on the Sutter Plus at www.setterplus.

Operator

Ca. 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 Ceter 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

Yes. Thank you, Ivo. Good morning, everyone, and thank you for joining us. On our call today, I'll review recent highlights and John will follow with a more detailed look at our financial results and then we'll hold a Q and A session. Financial results for Q1 included revenue of $12,500,000 adjusted EBITDA of $2,700,000 and cash from operations of $800,000 Q1 revenue from our marketed products in Canada grew 3.5% in constant currency, Vascepa up 27%.

Speaker 1

We made progress on several fronts in quarter 1, but overall results were below our expectations. Lower than expected net sales were driven in large part by the delayed timing of ex factory orders for both Vascepa and Clozaril at the end of March and in the case of U. S. Clozaril, excess year end inventory. To put the impact of these delayed orders into context, March combined ex factory sales for VASCEPA and Clozaril were down 3% year over year, while ex factory sales for April were up 25% year over year.

Speaker 1

After a solid start to the year, we experienced lighter than forecasted unit demand for Vascepa in March, while conversely demand trends for Clozaril in Canada and the U. S. Have been largely in line with our forecast. As expected, the decline in royalties had the greatest impact on year over year comparisons for revenue and adjusted EBITDA. Let's start with a discussion around Vascepa results and some key actions we're taking to meet our brand goals.

Speaker 1

When we set our full year guidance in early March, January February ex factory shipments and demand trends were on plan. Subsequently, both unit demand and sales activity fell short of expectations in March. Overall, Q1 unit demand was up 54% versus Q1 of last year. And while this is solid growth, this rate is tracking below the ambitious 70% growth required for the full year to meet our 2024 guidance. And although sales growth picked up in April, unit demand growth remains well below where it needs to be to get us back to plan.

Speaker 1

Our long term goals for Vascepa haven't changed. We intend to drive growth and achieve product profitability by year end and to then profitably grow the brand through 2,039 based on the long patent runway we have. We remain confident that several catalysts will help drive demand for Vascepa throughout this year. That said, despite making changes to our primary care selling model, we have not generated an uptake in that prescriber segment to justify our investment. After carefully analyzing the impact versus the ongoing cost of supporting a large sales team calling exclusively on primary care physicians, we determined it's time to make a bold change.

Speaker 1

Therefore, one key action we announced today is that we are exiting our promotional agreement with Pfizer and will transition sales force efforts for Vascepa in primary care back to HLS in the coming months. This is obviously an important decision, so I'll walk you through our analysis, our strategy going forward and the impact on our 2024 outlook. I joined HLS a year ago and one of the top priorities that I spoke about in my first conference call was the need to optimize sales and marketing channel strategy and ensure that our investment was having maximum impact on the business. As we move through 2023, I focused increasingly primary care as it was by far the single largest investment that HLS was making and the results being generated were below expectations. We made several adjustments to our primary care strategy during the second half of twenty twenty three and we spent considerable time working with Pfizer to refine and optimize the selling model.

Speaker 1

However, having implemented multiple changes to our strategy, only repeat to repeatedly find ourselves in the same place, short of expectations, it's time for a more significant change. Let me share some of the analytics that informed our decision to exit the agreement. 1st, promotional responsiveness. On average, 26 sales calls are being made for each new to brand patient initiation in primary care. This is more activity than would be expected for a brand that's been promoted several years.

Speaker 1

By comparison, an average of about 3.5 sales calls are made due to the size of the target prescriber universe. Despite targeting approximately 4,600 primary care physicians in our updated model and over 8,000 prior to the Q4 of last year, adoption in primary care remains highly concentrated. 75% of new to brand patients in primary care are coming from less than 500 general practitioners and 75% of all prescriptions in primary care are coming from just over 800 GPs. Of those 800 GPs, about 350 of them are prescribers that the HLS sales force has also called on in the past 12 months. Therefore, we are confident that our experienced HLS sales team can continue to drive growth and effectively cover both specialists and high potential primary care physicians.

Speaker 1

Finally, let's talk about contribution by prescriber segment. Our thesis was that by this point, the large number of GPs being called on would be both prescribing more than specialists and also driving a larger share of new to brand patients. This would be consistent with other analogs, including Amarin's experience in the U. S. However, as it stands right now in the 5th year of commercialization for Vascepa, just 1 in 3 new to brand patients are originating in primary care versus a goal of 34.

Speaker 1

We appreciate the commitment and effort that the Pfizer team has put into trying to make this go to market model successful. Unfortunately, the model has simply not delivered what was expected or hoped for. I want to emphasize that we strongly believe in the long term growth potential for Vascepa and that primary care prescribers will continue to play an increasingly important role in that growth. We will continue to work on addressing the root causes of this low penetration in primary care. But in the meantime, we will scale back our investment and build in greater operational flexibility.

Speaker 1

Once we fully exit the Pfizer agreement, HLS will recoup about US5 $1,000,000 in annual savings, which will increase the profitability of Vascepa. This move will also increase our flexibility to quickly adapt plans and resources, while allowing for a much greater level of control and accountability over sales force execution. Our commercial team is excited about the opportunity to bring the totality of selling efforts in house and to have full ownership for driving Vascepa to achieve its full potential. In fact, given the influence that specialists can have on GP prescribing, we anticipate a meaningful benefit from having our representatives calling on both within a given geography and being entirely accountable for the results. We have a 3 point action plan to move Vascepa forward in the best possible way.

Speaker 1

The first step is to complete the terms of our exit agreement with Pfizer and ensure an orderly transition to the HLS sales team. We are confident that we can support the Vascepa business with our current sales team with no more than a few additional reps. As the product scales in primary care, we'll have the flexibility to increase our sales resources. Our expectation is that the transition will be completed during the second half of the year. 2nd, we are looking at ways to stabilize our payer mix dynamics by improving Vascepa performance in the private payer segment.

Speaker 1

One key insight we've uncovered is that script abandonment at the pharmacy and the discontinuation rate on Vascepa are both significantly higher for patients on private insurance. We believe this is largely due to a higher average out of pocket cost for the privately insured versus the public segment. Therefore, starting on May 1, we introduced an enhanced patient financial assistance program that is exclusively being offered to privately insured and uninsured patients. 3rd, we have refocused our commercial messaging and are reinforcing the key clinical data from REDUCE IT with particular emphasis on the unique benefit around reduction in cardiovascular related death. Recent market research suggested that our sales calls had drifted too much into discussions around access and reimbursement challenges, and we had gotten away from the clinical differentiation messaging associated with the REDUCE IT findings.

Speaker 1

In addition to these new initiatives, we did have several other Q1 developments that we believe will be positive drivers for Vascepa through the remainder of 2024 and beyond. In February, we obtained public reimbursement in British Columbia, which also prompted the province's largest private plan, Pacific Blue Cross, to introduce coverage as well. Pacific Blue Cross provides healthcare benefits for about 40% of the privately insured lives in BC. And we expect the impact of this improved access to be felt starting in Q2. In Ontario, in the Q1, the average wait time for authorizing new patients on the public plan was reduced dramatically to less than 5 days.

Speaker 1

While a step in the right direction, the current expanded access program remains an unnecessary administrative burden for physicians, impacting their willingness to prescribe and slowing down patient initiation. We are working to improve the situation and our recently deployed field reimbursement resources in Ontario and Quebec are having an impact. In Q1 alone, EAP cases in Ontario that were assisted by a field reimbursement specialist saw a significant improvement in the reimbursement approval rate. We're also seeing encouraging indicators that this support is accelerating turnaround time from submission to dispense. We're still early in the deployment of this program, but are focused on optimizing it now and scaling as appropriate in the future.

Speaker 1

Of course, we're continuing to make efforts towards obtaining a limited use code, which would help resolve the current administrative challenge for physicians trying to prescribe Vascepa in Ontario. In terms of our 2024 outlook for Vascepa, based on demand trends through April, along with some potential adjustments from the go to market model transition, we are revising our guidance. We are now expecting revenue in a range of $17,000,000 to $18,000,000 or CAD22.5 million compared to CAD20.5 million to CAD22.5 million or CAD27.5 million to CAD30 million in our previous guidance. This revised guidance would represent net sales growth that ranges from 27% to 38%. To mitigate the impact of the Vascepa revenue revision on adjusted EBITDA and cash flow, we'll continue to focus on expense management for the remainder of the year.

Speaker 1

We're encouraged by progress made in Q1 with 6% year over year reductions in both sales and marketing spend and general and administrative costs. And on our Q2 earnings call, we'll have more to report on the potential cost savings of bringing the primary care selling efforts in house. We continue to believe Vascepa has a long runway of robust growth ahead of it. Indeed, our patent estate extends well beyond the period of data exclusivity, with protection extending into the 2030s as late as 2,039. Most importantly, we believe strongly in the therapeutic value of Vascepa and its importance to patients battling cardiovascular disease.

Speaker 1

Just a few weeks ago, additional data was presented at the American College of Cardiology meeting, demonstrating the clinical benefit of Vascepa regardless of baseline levels of lipoprotein A. Why that's important is that patients with high Lp levels have been shown to be at greater risk of major cardiovascular events. And as a result, one of the most pursued biologic targets in cardiology drug development. Importantly, the data presented suggest that Vascepa could work in a complementary way to potential future drugs that act on lowering Lp. This represents yet another example of Amarin's ongoing commitment to generate important new clinical insights from the REDUCE IT trial, building on the already vast body of evidence supporting Vascepa.

Speaker 1

In addition, an independent retrospective study from the University of Pennsylvania in a large veteran patient population generated real world evidence of the clinical benefit of icosapent ethyl over mixed omega-three formulations. The study compared real world use of icosapent ethyl versus omega-three formulations with over 2,000 patients in each arm with IPE showing a remarkable 38% improvement in the composite MACE endpoint. Now I'd like to turn to Clozaril. For Clozaril Canada, patient numbers in the Q1 were up 1.4% versus Q1 last year. However, as with Vascepa, the timing of orders moving from March into April negatively impacted Q1 net sales.

Speaker 1

Given the strength of ex factory shipments in April and year to date demand estimates being consistent with our forecast, our outlook for Clozaril Canada remains unchanged. In fact, year to date ex factory sales through April are up 2.8% over the prior year. With Clozaril in the U. S, wholesalers ended 2023 with an unusually high level of inventory, resulting in approximately 300 and $50,000 less in Q1 net sales than we might have seen with normal ordering patterns. We have plans in place to drive demand and expect to make up for the shortfall as the year progresses, but there is some risk that we will carry this throughout the year.

Speaker 1

As stated in our last call, our goal is to grow Clozaril by 1% to 2% on a go forward basis by following strategies specific to 4 geographic regions. In Ontario, our goal is to leverage our leading market share and expand the clozapine market by getting treatment resistant schizophrenia patients more quickly into treatment. In Quebec, where we've discussed the legislative challenges blocking new patient acquisition, our focus is on providing superior support to our existing patient base to minimize attrition. In Western Canada, we are growing our market share by leveraging the Pronto technology to bring our CSUN services to more doctors and patients. We've had success working with specialty pharmacies in BC and Alberta to introduce Pronto and we'll look to expand this initiative further.

Speaker 1

Our 4th geography is our U. S. Business, where we have stabilized Clozaril patient share. Here we've successfully piloted a program with a regional specialty pharmacy leveraging Pronto to drive product adoption. We're exploring whether there may be select opportunities to expand this pilot program in other geographies within the U.

Speaker 1

S. So to sum up for Clozaril, Q1 net sales were impacted by excess year end inventory in the U. S. And because of the delayed timing of orders in Canada, but the underlying demand is stable and consistent with expectations at this point. We expect U.

Speaker 1

S. And Canadian Clozroll numbers to improve in the Q2 and we remain on track to meet our 2024 revenue goal. Now I'd like to briefly discuss our full year guidance. As previously mentioned, given where demand growth is trending and some details to still be worked through around the pending Pfizer transition, we are guiding to a lower Vascepa number. Therefore, as it relates to the full company guidance, we're lowering 2024 consolidated revenue guidance to a range of $60,000,000 to $62,000,000 from the previous $63,500,000 to $66,500,000 Based on this revised top line number, we're also lowering our full year adjusted EBITDA target to $17,000,000 to $19,000,000 from $21,000,000 As mentioned, we'll continue to look for additional expense reductions to positively impact this further.

Speaker 1

We recognize this is a year of transition as we work to mitigate the impact of the substantial decline in royalty revenue. That said, we are optimistic about the changes we're making to get Vascepa to profitability and we remain confident in the steady performance of Clozaril. I'll now turn it over to John for a closer look at the numbers. John?

Speaker 2

Thank you, Craig, and good morning, everyone. Starting with revenue, total revenue for Q1 was $12,500,000 compared to $14,800,000 in Q1 last year. Excluding royalties, revenue from marketed products in Q1 was $11,800,000 compared to $12,000,000 in Q1 2023. In constant currency terms, Canadian product sales of Vascepa and Clozaril for Q1 were up 3.5%. Sales growth in Canada was led by Vascepa, which was up 27% in Q1.

Speaker 2

Net sales trailed 4% unit growth in the quarter as the business continues to adjust to the addition of public reimbursement, a process that began in the second half of last year. Turning to Clozaril, Canadian Clozaril product sales were down 7% in Canadian currency, while the number of patients continues to grow, up 1.4% in the quarter compared to Q1 last year. The last week of the quarter overlapped with the Easter holiday weekend, resulted in certain orders typically placed during the final business days of Q1, 2024 being pushed into the 1st week of April. The timing of the orders negatively impacted both Vascepa and Clozaril net sales by a combined total exceeding US600000 dollars For both products, we saw an acceleration of sales in early April with Clozaril picking up the bulk of its pushed sales. Vascepa also picked up a good portion of its pushed sales, but as Craig pointed out, unlike Clozaril Canada, not enough to get us back to plan.

Speaker 2

U. S. Clozaril sales were down 18% as wholesalers ended 2023 with larger inventory balance than usual and drew down on these balances in the quarter, affecting net sales by about $350,000 As Craig mentioned, we have strategies in place to drive our Clozaril business in the U. S. And we'll look to make some ground as we move through the year.

Speaker 2

We also expect to undertake a modest price increase during the year to further support the U. S. Business. Royalty revenues were $700,000 in Q1, down 75% from Q1 last year. As you know, the royalty term for what was the largest royalty in the portfolio came to an end midway through Q4 last year, which led to the year over year decrease.

Speaker 2

We do expect that Q1 2024 will be the bottom from which the royalty portfolio will then begin to grow, driven largely by Sanofi's design. The growth in Vascepa shipments is the largest driver of the 23% increase in the cost product sales for Q1. Excluding cost of product sales, total Q1, 2024 operating expenses were $8,000,000 down 3% from Q1, twenty twenty four. Selling and marketing and general and administrative expenses were both down 6% compared to Q1 last year, while medical, regulatory and patient support expenses increased 18%, largely as a result of the prior year period expenses being lower than typically average quarterly expenses for medical and regulatory. For 2024, we will continue to focus on cost management and seek expense reductions throughout the business.

Speaker 2

Q1 adjusted EBITDA was $2,700,000 compared to $5,100,000 in Q1 2023. The decrease for the quarter was due primarily to the decrease in royalty portfolio revenue as well as the impact on revenue related to timing certain Clozaril and Vascepa orders during the quarter. This was partially offset by the 27% growth in Vascepa revenue. For Q1, the direct brand contribution from Clozaril to adjusted EBITDA was $6,100,000 while the direct brand contribution from Vascepa to adjusted EBITDA was a loss of $1,600,000 As Craig mentioned, we expect Vascepa to a positive direct contribution to adjusted EBITDA beginning in Q4 of this year. Cash from operations in Q1 was $800,000 compared to $4,000,000 in Q1 last year.

Speaker 2

Cash and cash equivalents were $19,400,000 at quarter end compared to $22,000,000 at December 31, 2023. Finally, we continue to delever our balance sheet with principal balance senior secured term loan outstanding at quarter end being $86,400,000 down from $88,500,000 at the end of last year. And with that, I'll pass it back to Craig for his closing comments.

Speaker 1

Thanks, John. To sum up, Q1 was a challenging quarter with some transient ordering patterns that impacted net sales and which should improve as the year progresses. Underlying demand for clozaril remained stable and we also had several positive developments with Vascepa on the reimbursement front and continued to drive unit growth of more than 50%. That said, we are falling short of the ambitious growth goals we set for Vascepa and concluded that the selling model needs to be dramatically adjusted in primary care. We're excited to bring the sales but will have other benefits including greater control over execution, flexibility and resource allocation and more rep level accountability for results.

Speaker 1

With HLS having control over all aspects of the sales and marketing mix, we believe we can better position Vascepa for long term growth, while also achieving near term profitability that we have committed to. And as we gain more traction in primary care and achieve the growth we expect, we will have the flexibility to scale our operations accordingly. We are optimistic about the potential to exit 2024 with a growing and increasingly profitable product portfolio, which will set us up for an improved growth outlook in 2025 and beyond. That concludes my prepared remarks. And at this point, I'll ask the operator to please provide instructions for asking a question.

Speaker 1

Operator?

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from the line of Rahul Saragasser from Raymond James. Your line is now open. Please ask your question.

Speaker 3

Hey, good morning, Craig and John. This is Mike on for Rahul today. And congratulations on a lot of bold developments as you've described today. Hopefully, this translates into positive results going forward. Now, some questions on the termination of the Pfizer co promotion agreement.

Speaker 3

One is, are there any termination fees associated with this termination? And I wonder if like while you described that there would be a $5,000,000 annual cost reduction associated with that termination. How do you expect the costs of internal sales to increase as you sort of take out that mantle?

Speaker 1

Yes. Hi, Mike. Thanks for the question. There's no penalties in the contract per se and I'm not going to get into the kind of the details of the contract. What I will say is there certainly is elements in the contract to ensure an orderly transition that protects both parties.

Speaker 1

And so there's a little bit of variability in there that ourselves and Pfizer are discussing what's sensible in terms of the time needed again for both organizations to ensure a smooth transition. And then there are some other elements related to tail type milestones that are fairly minimal. So our expectation on net that we can't give a precise timeline yet, but the transition will occur in the second half of the year. We expect that there will be some cost savings in 2024, but we'll have to come back with what that will be once we finalize the details, which we expect will happen in the coming weeks. And then, our expectation is that we'll get the full benefit in 2025.

Speaker 1

A bit of that will be a bit of that will be reallocated to other parts of the marketing mix that we think are more impactful in spending so much on sales force. So as I've said before, we're just overbuilt in kind of investing far too much in sales force relative to other parts of the marketing mix. And so I talked about, for example, what we're doing with reimbursement in Ontario to support the efforts there or looking at things like patient assistance and ensuring that our patients on private insurance have copay assistance so that they're not abandoning the script at the pharmacy or dropping off treatment prematurely. So I think there'll be an opportunity for us to look at the full marketing mix and create a little bit more balance in terms of how we allocate resources. But I want to make it clear, the vast majority of those savings will go straight to the bottom line.

Speaker 1

So, again, we expect to reallocate some of that. And as I mentioned, we're very confident that we're adequately sized to cover specialty and the number of primary care physicians who are currently prescribing or putting new patients on Vascepa. We're taking a look at whether we might need to add a couple of additional territories, but it would be de minimis. And again, the goal would be to take the vast majority of that 5,000,000 dollars to our goal of getting Vascepa profitable as quickly as possible and then continuing to grow Vascepa and grow the margin and enjoy that for an extended period of time.

Speaker 3

All right. Thanks. That's very helpful. Now the second question is around the sales life and peak sales timing of Vascepa. You mentioned that the patent estate around Vascepa extends into the 2030s, the longest dated one to 2,039.

Speaker 3

The drug has exclusivity to around 2028 in Canada and we saw in the U. S. That generic pressure began mounting like fairly early on in the drug's life. I wonder given this information in this context, how is the company thinking internally about, I guess, peak sales timing and sort of durability of this drug in Canada?

Speaker 1

Yes. So we're so the patent situation in the U. S. And Canada is very different. I would say that the better analog would be Europe in terms of the type of claims that the patent estate is built on.

Speaker 1

As you recall, the U. S. Patents were breached based on the label being specifically related to triglyceride lowering, which is not how our path to state is built. Ours is built around REDUCE IT and those clinical benefits. So entirely different situation.

Speaker 1

We have a high degree of confidence that we have a robust patent estate. We work closely with Amarin. Our General Counsel works very closely and they have a very clear strategy around that. Not going to go into the details for obvious reasons. But in terms of our planning horizon, obviously, if we expected that we would face generics in 2028, we would not have made the level of investment that we did.

Speaker 1

So our expectation is that we will be promoting Vascepa well into the 2030s and again enjoying not just that top line growth, but profitable growth throughout the majority of that timeframe. All right. So as far as peak sales, I'm sorry, I didn't get to your second point. Yes. So again, we I put out kind of what we think the potential is there, certainly north of 100,000,000 dollars If we look at the U.

Speaker 1

S. As an analog and obviously based on the size of Canada relative to the U. S, we look at kind of their volumes of prescribing. We think that's still a very reasonable ambition. Clearly, it's going to take us longer to get there than originally projected.

Speaker 1

We acknowledge that and that's why it's so important that we get the profitability and that's why it's so important that we have the belief and the expectation that we have a very long runway in front of us because it will take a little bit longer certainly to get to that peak sales. But we still are growing, we're not growing as fast as we'd like to, but certainly the growth is still there and we're doing and there's nothing that we're doing now that will compromise that growth. I want to make it clear the decisions we're taking, while they're going to result in significant savings in getting Vasecaa to profitability that much faster, we don't believe we'll have any negative implications in terms of growth. We're still very committed to growth. And as I mentioned, we think there's better ways to allocate our resources to optimize our marketing mix.

Speaker 1

And we also have the belief that based on the concentration of prescribers and the fact that many of those prescribers we've already called on in the past that there's actually some synergy in terms of having a single sales team call on both specialty and primary care. So this we truly believe is a win win on both fronts.

Speaker 3

Thanks for clarifying all this, Craig. I'll pass it on.

Operator

Your next question comes from the line of David Martin from Bloom Burton. Your line is now open. Please ask your question.

Speaker 4

You mentioned that the field resources are increasing reimbursement approval rates for Vascepa. That suggests that Ontario is still denying some requests. Is that going to make it difficult to get the LU code for Vascepa in Ontario anytime soon?

Speaker 1

Thanks for the question, David. And that's actually that's an excellent question. That is certainly a consideration in terms of getting the LU code. In terms of our interactions with the ministry and the kind of the bureaucrats within the ministry that run the program, so just take a step back, we've retained a very prominent senior somebody who was a senior official in the ministry who's now a consultant who and we've reached out to all levels within the ministry. I would say that the that's not come up as a concern.

Speaker 1

And I would say on the flip side, it's actually been part of our argument, which is our belief is that a lot of patients are being denied access to Vascepa for really kind of inconsequential reasons, pretty kind of nitpicky reasons. And we've got documentation to support that in some cases, patients being rejected because they thought the statin dose should be higher or something that really gets into the realm of clinical practice not appropriate for a bureaucrat making decisions on authorization to be wading into. So I would say it definitely is a variable. But if anything, we're confident that the drug is being prescribed on label and according to criteria. And in the majority of cases where it's not being authorized, our belief is that it's because of either some sort of paperwork issue or just some sort of really silly sort of reason.

Speaker 4

Okay. On another topic, you were talking about your patent. You didn't specifically mention Amarin's recent patent win in Europe. Do you not see that as an analog for what you might

Speaker 1

Right. Yes. So certainly, again, we try not to comment too much on other companies' patents, but obviously there is a parallel there. I would say the patents bear close similarity what we have in Canada. So obviously we had a keen interest and we're pleased with the outcome.

Speaker 1

I think that was a 2,035 patent if I'm not mistaken. So certainly there are parallels there, but we have our own every situation is unique. But yes, I think that's a reasonable analog.

Speaker 4

Great. And one last question. You mentioned you're going to pilot Pronto in the U. S. If I recall correctly, that was done a couple of years ago and didn't seem to go anywhere.

Speaker 4

Why do you think it might this time? What are the changes that you're going to make to this program?

Speaker 1

Yes, I can't comment. I probably wasn't here when it was done in the past. This is a very specific, I would say targeted initiative. So it's I agree to David that this might not be something that we would do broadly across all geographies in the U. S.

Speaker 1

This is a specific specialty pharmacy out of the western part of the U. S. It's a very targeted program that seems to have been generating a positive ROI and bringing additional patients in. And I would say the proof point is we have seen after years of declines in terms of market share and patient numbers in the U. S, we have actually seen stabilization over the last 6 to 12 months.

Speaker 1

And so and we believe this initiative is part of that. And so it doesn't take our market share is relatively low in the U. S. It's in contrast to Canada where we have high market share, low market share in the U. S.

Speaker 1

But obviously the kind of the per patient value in terms of profitability is much higher. So it doesn't take a lot of growth in the U. S. In terms of patient numbers or market share to make a meaningful impact in terms of our sales performance there. So again, I don't want to overstate it.

Speaker 1

It's a limited pilot. There may or may not be opportunities to expand. Each state has very specific regulations and requirements as it relates to pharmacy driven initiatives. So we're very sensitive to that and obviously observing all of the elements of compliance. But we think in a surgical way we can apply this and grow incrementally because we've seen it.

Speaker 4

Okay, thanks. That's it for me.

Operator

Your next question comes from the line of George Juliushev from Credit Securities. Your line is now open. Please ask your question.

Speaker 5

Good morning, guys, and thanks for taking our questions. Just a few questions here from my side. Can you give us a sense of how the prescription growth for Vascepa has been tracking in the Q1 in each of the provinces? Are you guys seeing any meaningful changes in general trends in any of the provinces?

Speaker 1

So for Vascepa, we continue Quebec continues to lead the way. That's consistently been our strongest area. I don't have in front of me the specific numbers. But in terms of relative performance, Vascepa has been strong in Quebec. We're starting to see signs of lift in the West, which has traditionally been our weakest because of our access and reimbursement there.

Speaker 1

I'll acknowledge that we got the product listing in February and it's taken a little bit of time to dial that up as with other provinces as it relates to authorization and so forth. It takes a little bit of time to prime the pump, obviously. And so we're starting to see some signs there of growth accelerating, picking up out west in BC and Alberta even. Ontario has been steady, but below where we needed to be as the largest province. And obviously, there's been the challenges there with that we've talked about at length with the public plan being overly cumbersome and as of last summer taking an and patients are, getting approved in a much faster, and patients are getting approved in a much faster fashion.

Speaker 1

And as I've talked about, we put some resources to work there to help facilitate that. But we still believe that the major inflection point will occur once we get the limited use code. That being said, our expectation would have been stronger growth in Ontario, just based on improvement in the reimbursement dynamics with the current plan as it is. And so that's an area of keen focus for us to improve performance there.

Speaker 5

Understood. Thanks for that, Craig. And you guys also mentioned, obviously, relatively low percentage of GPs prescribing Vascepa. What has been the pushback from the remaining GPs? Like have you guys were you guys able to get any feedback from the Pfizer sales team on that?

Speaker 1

Yes. It's a good question. I think that's what we're kind of digging into. I do want to acknowledge that there has been progress made. I mean every quarter certainly there has been an increase in terms of prescribers and depth of prescribing.

Speaker 1

The issue is it's occurring much more slowly than we expected. And obviously, based on the level of investment, it's the ROI is quite low. I would say traditionally with this type of product, often you would launch into specialty, really optimize your performance in specialty, really optimize your access and reimbursement across the board and then really apply a lot of resources against primary care because they do tend to be later adopters and certainly for these type of medicines that are for asymptomatic chronic conditions, they can tend to be challenging medicines to get traction in a primary care setting. And of course, as we've all talked about, there's certainly a lot of competition there. To answer the question, I think we have more work to do to dig in and really better understand the barriers.

Speaker 1

I'd say the largest one that we are aware of is the reimbursement issue. A primary care physician, unlike a cardiologist, for example, that really understands the benefits and understands the REDUCE IT data, primary care physician that's dealing with a lot of different conditions isn't necessarily a specialist in cardiology, it's asking a lot for them to take on the administrative burden in a busy practice that's required quite frankly to get the drug approved for a patient for example in Ontario. And so historically, when you crack the code on improving the conditions around access and reimbursement, oftentimes that liberates prescribing from a primary care audience. But our belief is we will continue to grow. We will physician understands the why, make sure that the physician understands the necessity of putting their patient on potentially life saving therapy like Vascepa.

Speaker 1

So certainly, we're going to be looking at messaging. Is the messaging sticking, doing what we can around reimbursement? But I'd say it's a blend of considerations, and it's something that will be obviously, as we take on greater responsibility for primary care, something we're going to be very much focused on.

Speaker 5

Got it. That's it for me. Thank you, guys.

Operator

We have our next question from the line of Julian Hung from Stifel. Your line is now open. Please ask your question.

Speaker 3

Hi. This is Julian sitting in for Justin today. Regarding the pricing and gross margins for Vascepa, how are they looking in 2024 compared to 2023?

Speaker 1

So, yes, we don't comment on gross margin. I would say in terms of gross to net, which we don't give kind of specific numbers around it, but essentially what I can comment on and I'll certainly ask John if he wants to add anything to it. The biggest lever around gross to net, which is essentially why you see the delta between the growth in unit demand versus the growth in net sales has been this adjustment on the payer mix side. And again, we don't give specific numbers out, but we have disclosed that there is a fairly sizable difference between the profitability in the private payer segment versus the public payer segment. And so as we got product listings across most of the major provinces, we've seen an adjustment in our payer mix.

Speaker 1

That will continue through 2024, which does put some downward pressure on gross to net. But the rate of that adjustment is declining. So in other words, we saw a much greater shift in payer mix in 2023 than we should see in 2024. And our expectation is that probably around the 2025 timeline, we'll start to see a stabilization of that at about fifty-fifty. In other words, half of our business coming from public, half coming from non public.

Speaker 1

And at that point, we should start to see our growth in demand better reflect or growth in net sales, I should say, better reflect our growth in demand. And so that's potentially, we think, an upside lever as years go by that we can continue to drive high rates of demand growth. And as our payer mix stabilizes, we'll see that growth to gross to net stabilize as well. So I'm not sure if that's pretty much as much information as we typically will disclose. John, did I miss anything?

Speaker 2

No, I think you summarized it well.

Speaker 3

Okay. And my other question is to make up for some of the reduction

Speaker 2

portfolio?

Speaker 1

So we are always on the lookout for we have a BD person that's always on the lookout for opportunities. So we're always reviewing things, admittedly, so are a lot of other companies. But I would say, ideally, we would love to bring in additional commercial stage assets that line up well with our capabilities. And obviously, we feel we have strong capabilities in cardiovascular, endocrinology, neuropsychiatry. So that tends to be the core of the type of things we look at.

Speaker 1

And we have very obviously rigorous criteria based on our operating results. Our primary focus our first, second and third focus is obviously on improving the results with the assets that we have. But obviously, if we found the right opportunity that we felt was accretive and synergistic with our current portfolio, we would pull the trigger. And that's really kind of our near term focus as far as BD. But we haven't found anything just yet.

Speaker 3

Okay. Thank you so much for taking the question.

Operator

Your next question comes from the line of Tanya Armstrong Wentworth from Canaccord Genuity. Your line is now open. Please ask your question. Good morning. Thank you, gentlemen.

Operator

Just a couple more from me here. So first, kind of following on Julien's question, I'm trying to understand what that co pay assistance program is going to do to your ultimate margin for Visteeva. I know you're targeting breakeven still by Q4. But maybe does that hit the gross to net line or does it hit the gross margin line? And how impactful is it to your ultimate EBITDA margin?

Speaker 1

Right, right. Yes, the co pay assistance gross to net. We the thing to consider though is it's targeted only to uninsured and privately insured patients. So those tend to be higher margin patients. And in general, getting more of those will drive will improve our gross to net even with greater co pay assistance.

Speaker 1

And the co pay assistance is capped. I want to be clear that we don't see this as a major additional expense. It's a modest expense. It's budgeted and it will have some impact, but fairly minimal. But our ability to actually get more patients, more privately insured patients onto Vascepa and staying on Vascepa we'll have a profound impact, positive impact overall on our profitability and on our gross to net.

Speaker 1

So we see something on the order of about a 10% delta between kind of persistence rates among the public plan patients versus the private pay patients. And the main difference really is the average out of pocket. So if we can help with that a little bit, we will both help patients and get and drive demand, but also on net improve our margins. Sorry, are we still on?

Operator

Thank you. We don't have any further questions at this time. I would now like to turn the meeting back to Mr. Millian for closing remarks.

Speaker 1

Thanks. Thank you everyone for participating on today's call and we look forward to reporting to you on progress in the coming quarters and speaking with you again soon. Thanks and goodbye.

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Earnings Conference Call
HLS Therapeutics Q1 2024
00:00 / 00:00