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Edited Transcript of HLS.TO earnings conference call or presentation 7-Nov-19 1:30pm GMT

Q3 2019 HLS Therapeutics Inc Earnings Call

Nov 16, 2019 (Thomson StreetEvents) -- Edited Transcript of HLS Therapeutics Inc earnings conference call or presentation Thursday, November 7, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gilbert Godin

HLS Therapeutics Inc. - President & COO

* Gregory David Gubitz

HLS Therapeutics Inc. - Co-Founder, CEO & Director

* Tim Hendrickson

HLS Therapeutics Inc. - CFO

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Conference Call Participants

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* David C. Martin

Bloom Burton & Co., Research Division - MD & Head of Equity Research

* Justin Keywood

GMP Securities L.P., Research Division - Director of Equity Research

* Noel John Atkinson

Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation

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Presentation

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Operator [1]

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Good morning, and welcome to the Q3 Fiscal 2019 Financial Results Conference Call for HLS Therapeutics. On this morning's call, we have Greg Gubitz, Chief Executive Officer; Gilbert Godin, President and Chief Operating Officer; and Tim Hendrickson, Chief Financial Officer. (Operator Instructions)

Earlier this morning, HLS issued a news release announcing its financial results for 3- and 9-month periods ended September 30, 2019. The news release, along with the company's MD&A and financial statements will be available on HLS's website and on SEDAR.

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 dated April 1, 2019, which has been filed on SEDAR and can be accessed 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 U.S. dollars, unless otherwise specified.

I would now like to turn the meeting over to Mr. Gubitz. Please go ahead, sir.

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Gregory David Gubitz, HLS Therapeutics Inc. - Co-Founder, CEO & Director [2]

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Thank you, operator. Good morning, everyone, and thank you for joining us at this very exciting time for our company. As we have done in prior calls, I'll start off with a look at our activity during the quarter and our near-term priorities. Gilbert will review developments with our product portfolio, and Tim will take a more detailed look at our financials. Following Tim, I'll provide some closing remarks, and then we'll hold the Q&A session.

Q3 was another solid quarter, with our business once again generating sequentially stable and consistent adjusted EBITDA and cash flow. Looking at the numbers, our Q3 revenues were $13.4 million, adjusted EBITDA was $8 million and cash generated from operations was $6.8 million. Our balance sheet remains strong with cash of more than $51 million and net debt of less than $44 million.

On the revenue side, as expected, we had a strong July with a boost from the Canadian-based Clozaril sales that came in, in the last day of Q2 and were delivered in Q3. However, through August and September, we saw certain institutional clients drawdown on their inventory, which impacted overall sales volume in the quarter. Gilbert will speak to this in more detail in his section. In our opinion, this is not a persistent issue and the outlook for Clozaril remains strong. The number of Clozaril patients in Canada continues to trend higher, up more than 2% year-over-year. And subsequent to quarter end, Health Canada granted us a medical device license for the CSAN Pronto device. These 2 factors give us strong confidence in the growth potential of the product in Canada.

Looking more broadly at the business and the opportunities ahead of us, the next few months look to be very productive for HLS as we seek to capitalize on our growth catalysts. Foremost is Health Canada's priority review for Vascepa, which is underway right now. We expect a response from Health Canada around the end of the year upon completion of their review. As we have stated in the past, with cardiovascular disease being the leading cause of death worldwide, we believe that Vascepa has the potential to be a transformative product for HLS and has the potential to enhance the quality of life for many Canadians. We believe Vascepa could generate peak revenues in Canada in the range of CAD 150 million to CAD 250 million per year, and that this estimate is conservative. The range represents middle- to upper-middle single-digit percentage penetration of what we estimate the market opportunity to be. Yet even at these levels, it represents a significant growth opportunity for the business.

On Tuesday of this week, Amarin announced its Q3 results, with record revenue levels and prescriptions for Vascepa in the U.S. market. Their Q3 revenue was $112 million, about 103% increase over Q3 2018. And based on monthly compilations of data provided by third parties, estimated normalized total prescriptions were up 89% in Q3 over the same period in 2018. Amarin reiterated its revenue guidance for 2019 of $380 million to $420 million. And that, as previously disclosed, it is moving forward to double the size of its direct sales force from 400 to approximately 800 for the start of 2020.

As you know, there is an FDA Advisory Committee AdCom meeting on November 14 for Vascepa relating to the label expansion to reflect the cardiovascular, or CV, risk reduction as demonstrated in the REDUCE-IT cardiovascular outcome trial. An AdCom meeting is somewhat of a routine or common process, especially when dealing with important new-in-class or breakthrough-type drugs. At its root, an AdCom is neither negative nor positive. The clinical expert views solicited at the actual AdCom meeting are intended to instruct the FDA's review and can be very positive when supported by a majority of participants. The results of the AdCom meeting will be made publicly available by the FDA immediately following the meeting.

Shortly after the quarter end, on October 17, we received a medical device license, essentially an approval, from Health Canada for the CSAN Pronto medical device. CSAN Pronto is intended to help simplify the mandatory safety blood monitoring process for patients with treatment-resistant schizophrenia, or TRS, and are prescribed Clozaril or clozapine. It is a point-of-care medical device that uses just a single drop of blood from a finger stick, and that produces blood test results in minutes right there in the doctor's office. No separate visit to a blood lab is required.

The conventional venous blood monitoring process, which requires 39 venous blood draws in the first year of treatment, has been cited as a major barrier leading to the underutilization of clozapine and we believe CSAN Pronto can help to lower that barrier and provide patients with better access to a proven treatment. HLS has exclusive rights to the device in Canada in the field of schizophrenia.

In addition to the Canadian market rollout of the device, which is now underway, we have a pilot program ongoing in the U.S., and Gilbert will provide an update on that in his section.

As for additional upcoming milestones, our goal is to submit filings to Health Canada for both Trinomia and Perseris in Q4, with a possibility that the Trinomia filing may occur early in 2020. Should both ultimately receive approval, Trinomia would be commercially complementary to Vascepa in the cardiovascular space, while Perseris would be commercially complementary to Clozaril and our central nervous system, or CNS, franchise. Gilbert will explain more on these developments, and we look forward to reporting to you on our progress in the coming months.

In summary, this is a very exciting time for the company. Our #1 near-term priority is to prelaunch preparation and launch of Vascepa, so that we can maximize the value of what we believe is a very material and transformative opportunity for the company. In parallel, we will continue to focus on building out our CNS and cardiovascular franchise with products such as CSAN Pronto, Trinomia and Perseris. At the same time, we also have the capacity to continue pursuing additional business development activities. I am confident that the strong balance sheet we have today will help support those initiatives.

And with that, I'll turn it over to Gilbert for a look at the broader product portfolio.

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [3]

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Thank you, Greg, and good morning, everyone. I will start off with comments on Vascepa, Trinomia and CSAN Pronto. Health Canada's priority review is in progress, and we expect to receive communication on the submission around the end of December.

Based on the landmark cardiovascular outcomes REDUCE-IT trial, our new drug submission is proposing that Vascepa be indicated for stable statin-treated patients with elevated triglycerides to reduce their risk of cardiac death, heart attacks, strokes and surgical bypass, an unmet need for many Canadians who are at risk for such events. If the product is approved, we would target a commercial launch into February 2020 time frame, which is what we are working towards today in terms of our prelaunch preparation.

At this point, all is progressing as planned. We have all key senior members of the cardiovascular team in place, and we will begin to onboard and train our sales force as the approval process unfolds. We expect to be in a position to quickly deploy our first group of 20 to 22 sales reps who, in our first phase, will target cardiologists, endocrinologists and a few selected general practitioners. This number of sales rep is 25% to 35% higher than the preliminary headcount previously announced. And it is motivated by the insight we have been gaining on the opportunity and how we can accelerate the uptake by early adopters. As we begin to introduce the product more broadly to general practitioners, we will increase our sales force likely topping out at approximately 70 to 75 reps at steady state.

Trinomia is our second product in the CV space. The bioequivalence trial is complete, and we're now working through the data. Our goal is to submit our filing to Health Canada before the end of the year, with commercialization to follow about a year later. Based on this time line, this would put the launch for Trinomia at about a year after the launch of Vascepa. This timing works well for us and would provide a complementary product to Vascepa for our cardiovascular sales reps.

Looking now at Clozaril, the foundation of our CNS franchise and key driver of cash flows to support and grow the business. As suggested earlier, in the third quarter, we saw certain institutional clients in Ontario drawdown on their inventory, which impacted sales in the quarter. To a lesser degree, this is something that had been happening through the entire year-to-date period and warrants some additional discussion.

We believe the reason for these drawdowns relate to a decision the government of Ontario announced mid-2018 to change the reimbursement process that applies to clozapine products. Previously, the process involved the province paying the manufacturers' invoices, such as HLS, directly. The process has now changed to require that hospitals pay us, the manufacturer, for the products that they use and that they get reimbursed by the province afterwards. With the benefit of hindsight, we can tell that the transition to this new policy had consequences on purchasing habits in the province of Ontario, where 40% of the national market is concentrated.

This took effect progressively between November 2018 and May 2019. First, it resulted in an increase in product ordered in the seasonally strong fourth quarter of 2018 under the old policy, resulting in a solid year-end finish. Second, around midyear, as hospital purchasing contracts were renewed and institutions started to administer purchases under the new process, they began applying greater inventory management to their Clozaril stock level and are not maintaining as much product on hand. This has had a transient impact on our current shipments. We believe it does not reflect a change in the fundamental demand for Clozaril that is driven ultimately by our growing number of registered patient which has increased by 2.2% over the last 12 months.

We should have demand more in line with our usual run rate going forward. This is a pipeline variability issue, which happens from time to time in our health care payer system and one that we believe will not persist. It is a scenario that would have impacted all manufacturers in that segment. This does not impact our view for the strong potential for the product going forward.

In addition to our patient growth, a development that bodes well for Clozaril is the approval of CSAN Pronto. The mandatory safety blood monitoring process, which requires today 39 venous blood draws in the first year of treatment has been identified as the biggest barrier to the adoption and usage of Clozaril or clozapine for TRS patients.

The value proposition to the patient and practitioner for CSAN Pronto is quite compelling. Traditionally, to get a blood test done, a patient would often have to go to a medical lab for a needle in the arm venous blood draw, 39 times in the first year, 12 times per year thereafter. With CSAN Pronto, a patient can now have the blood test done in the relative comfort and familiarity of their doctor's office and only a single drop of blood from a finger prick is required.

Under the old way of doing things, following their blood draw at a lab, a patient will have to wait a day or 2 for the results to be communicated to their doctor. And if they were adequate, a prescription was subsequently be written. With CSAN Pronto, blood test results are now available in just minutes right in the doctor's office, so the doctor can hit a button to push the result to document the patient's electronic file and the patient can leave with a prescription in hand. It is a far more efficient and far less invasive experience, which makes it that much more suitable for this type of sensitive patient audience. We look forward to getting this product broadly into the Canadian market.

In Canada, the rollout is underway and in its early days. Today, we have devices and consumables in inventory, and we are beginning the process of deploying them into the field. We plan to first address the needs of the large mental health centers across the country, following which we will branch out in the satellite centers and clinics addressing the needs of inpatients and outpatients. We expect to start seeing the benefits within the next couple of quarters.

In the U.S., our pilot program for this device remains ongoing with initial results looking positive. We have more than 700 patients in 15 California-based clinics enrolled in the pilot, and the lessons learned will be valuable to rollout -- to our rollout here in Canada. While the U.S. pilot has yielded a visible uptick in new prescription and total prescription, we expect to run the pilot project through the end of this year, at which point we will decide on our U.S. strategy for 2020.

Finally, we also plan to file Perseris with Health Canada by year-end. Perseris has a potential to become a broadly used therapy for many schizophrenic patients that do respond to a first-line antipsychotic. It is a long-acting, once-a-month injectable version of risperidone, a widely used first-line treatment in this oral daily form. This once-a-month version may help address compliance while presenting features that are clinically convenient. This opportunity could allow us to directly leverage our neuroscience commercial infrastructure, relationships and reach in the Canadian psychiatric market, while delivering a new clinically meaningful therapeutic option for patients with schizophrenia. If ultimately approved, we would expect to be in the market with Perseris in early 2021.

With that, I will pass it off to Tim to look at the financials. Thank you.

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Tim Hendrickson, HLS Therapeutics Inc. - CFO [4]

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Thanks, Gilbert, and good morning, everyone. I'll take a few minutes here to drill down into some of the key numbers and metrics from Q3.

Starting with revenue, Greg and Gilbert have already commented at length on Clozaril results for Canada. Overall, Canadian Clozaril revenue was down 3.9% or $280,000 in Q3 2019 versus the same quarter a year ago, with exchange rate fluctuations accounting for 1/4 or about 0.9% of the 3.9% decline.

In the U.S., the Clozaril brand continues to experience modest volume declines on a year-to-date basis, the lowest rate of decline seen in 4 years, which is consistent with our expectations in this market. More than half of the total U.S. market year-over-year revenue decline for HLS in Q3 2019 is attributable to the discontinuation of the authorized generic supply agreement, which took place in Q4 2018. Recall that the previous authorized generic supply agreement was helpful for our supply chain transition but was not contributing meaningfully to adjusted EBITDA. And by exiting that agreement, the authorized generic is now available to us to use in our Pronto pilot in the U.S. market.

Regarding Absorica, royalties were below Q3 2018 levels by approximately $250,000 or 10% and essentially flat to Q2 2019. After considerable volatility in past years, Absorica prescription activity in the U.S. market appears to now be relatively stable. This is a passive investment that has done very well for us over the course of our involvement with it and on a cumulative basis has been a strong cash flow contributor.

Regarding operating expenses, we continue to make investments in our growth-oriented products, while still keeping a close eye on costs in general. Cost of product sales for both Q3 2019 and the year-to-date period are down year-over-year as the prior year periods included the cost of additional product sold under the former authorized generic supply agreement in the U.S.

The 2019 year-over-year increases in other operating expenses are driven primarily by the additional activity to prepare and support the planned introductions of Vascepa and CSAN Pronto in the Canadian market as well as the U.S. pilot described by Gilbert.

Adjusted EBITDA was $8 million in Q3 and relatively steady to numbers generated in Q1 and Q2 of this year. Q3's number represents a very solid margin of 60%, even as we invest in prelaunch activities for our growth products. Adjusted EBITDA in 2019 was lower compared to prior year periods due to lighter revenues and that growth-oriented investment.

Interest on the senior secured term loan in Q3 was $1.4 million compared to $2.7 million in Q3 2018. Year-to-date, interest expense this year was $4.5 million compared to $10.8 million in the same period last year. The decrease in interest expense is primarily due to the refinancing of the company's debt in August 2018. As at September 30, 2019, the principal debt balance outstanding under the new senior secured term facility was $95 million compared to $98.75 million at December 31, 2018, and $137.9 million just prior to the debt refinancing last year. This represents a significant delevering of the company and a relatively low leverage ratio. This is even more favorable on a net debt basis, where we stand at $43.7 million in net debt at the end of Q3 as a result of the strong cash balance on hand.

Cash from operations was again strong in Q3 at $6.8 million, bringing year-to-date cash from operations to $24.1 million, which compares favorably to $21.6 million in the year-to-date period last year. As at September 30, 2019, we had cash and cash equivalents of $51.3 million compared to $10.9 million at December 31, 2018. The largest driver of this increased cash balance are the net proceeds from the CAD 50 million bought-deal equity offering that was completed in Q2, supported by continued and consistent cash from operations including improvements in working capital over the course of the year.

And finally, in Q3, we returned just over $1.2 million to shareholders in the form of a CAD 0.05 per common share dividend. The next quarterly dividend will be paid on December 13, 2019, to shareholders of record as of October 31, 2019. In addition to that, yesterday, the Board of Directors declared another quarterly dividend, again, CAD 0.05 per outstanding common share, which is to be paid on March 13, 2020, to shareholders of record as of January 31, 2020.

So with that, I'll pass it back to Greg for his closing comments.

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Gregory David Gubitz, HLS Therapeutics Inc. - Co-Founder, CEO & Director [5]

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Thanks, Tim. In closing, this is a very busy and exciting time for the business. The priority review for Vascepa is nearing its completion, and we eagerly await the response from Health Canada and the opportunity, if approved, to bring this important medicine to Canadians. This product has transformational potential for our business. But more importantly, it has the potential to help Canadians address the residual risk of adverse cardiac -- cardiovascular events beyond cholesterol management.

We have 3 products now in the market, which we hope to increase to 4 early in the new year with Vascepa. And we are looking to submit filings for 2 more products with Health Canada by year-end. These positive developments are supported by a business that generates reliable cash flows and has a strong balance sheet. And we look to leverage a solid foundation as we seek new opportunities to execute on our strategy and to further expand our product portfolio.

That concludes our prepared remarks. At this point, I will ask the operator to please provide instructions for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of David Martin with Bloom Burton.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [2]

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First question, I know there's already been some independent support for pricing of Vascepa in the U.S. and that HLS is going through similar process in Canada with CADTH. Can you talk about the price you'd propose to CADTH? And I noticed on their website that they sent you a draft review report in late October. I'm wondering if they're in agreement with your price proposal. And can you discuss next steps with CADTH?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [3]

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Yes, I would qualify the exchanges with CADTH to be normal course. And I would roll the issuance of what we referred to as a preliminary report as normal course as well. This is a first step in fairly long processes that in the end culminate with products getting reimbursed by the various public and private authorities across the country. We're really, really at the beginning of the process. I think that overall, the only thing that I could comment on do not relate to pricing but relate to the general appreciation and understanding of the clinical value of the product. But otherwise, it's really too preliminary to comment on pricing. We think that our position has been that this product has to be priced in a way that recognizes its value, but most importantly, in a way, that also provides very broad access. And in that sense, we're following the philosophy of Amarin in the U.S. This product in comparison to other drugs that have similar benefits in terms of cardiovascular protection in other segments is much more affordably priced, and we certainly plan to provide that benefit to Canadians in a way that is also affordable.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [4]

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Okay. I guess we'll stay tuned for final decisions there. So over to Clozaril. I know it's early with the CSAN Pronto project, but have you got any feedback yet from physicians about whether or not it will change their prescribing volumes for Clozaril? You mentioned an uptick in the U.S. What about in Canada, where the drug is underutilized?

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Gregory David Gubitz, HLS Therapeutics Inc. - Co-Founder, CEO & Director [5]

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Okay. The feedback that we have, David, is of 2 nature. I think the qualitative feedback has been greater coming from the U.S. side of things. The clinicians and the health care practitioners involved in those face-to-face relationship with the patients have been raving about the application, and that is quite promising. We don't see why this wouldn't be equally appreciated in Canada.

In Canada, our experience and the feedback we've been gathering has been preliminary in the context of advisory committees that we've initiated, so as to understand how the implementation should be pursued in the various provinces in a way that is fitting to, I would say, the inclusion of new technologies and the pool of equipment and processes in existence in those treatment institutions.

So I would say, almost unanimously, we have yet to encounter someone that doesn't really see the benefit and relates strongly to what it could mean for the patient. We like to be pragmatic and see -- as we did in the U.S., see a response, see more than words, actions in uptaking and using the technology. But it gives us a lot of confidence that this is a technology for its time. It's the technology that uses the power of computational science and the smarts of merging hematology with deep learning programming. And the benefit, the very practical benefit from a clinical standpoint flows naturally. So that's why we're quite excited. And I think it will be well received.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [6]

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I just want a clarification. When you say greater feedback in the U.S., do you mean better feedback or higher volume feedback? And if it's higher volume from the U.S., has it been slower rolling out in Canada or are Canadians just quieter about what they're saying about it?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [7]

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No, it's strictly volume related to the fact that the pilot started a few months ago in the U.S. And therefore, as I alluded to, we have more than 700 patients in 15 clinics. So we're gathering a lot of that patient experience, we're adjusting, tweaking, making sure the deployment is meeting all the needs, and that will instruct the way we'll go about it in Canada.

In Canada, we're really at the very early steps with the approval essentially just a few couple of weeks old. We're now proceeding with the first stages of the development. None of those technologies have been in usage in Canada, but we see no reason why the patient and the practitioner, the clinicians experience will differ.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [8]

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Okay. And then to the 700 patients in the U.S., how many of those have switched from generic clozapine to Clozaril as they've been in the program? Where is the uptick in new patients coming from? Is this de novo new patients or they're switches over from the generic? And then as far as getting more patients with CSAN Pronto, how are you getting over the price differential of the branded drug versus the generic? Like you haven't got new patients in a long time, and now you are. Is there a patient assistance that's helping with bringing them onboard?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [9]

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Yes. There's many dimensions to your question. I'll try to tease out the various factors here. First of all, with respect to de novo patients versus existing patients, I think we're seeing both. There would be -- normally, there would be a smaller share of new patients. But one of the features of the system is there's a barrier to treatment. The safety monitoring creates oftentimes a knee-jerk reaction, where de novo patients refuse to undergo this intensive safety monitoring because of the venous blood draws and all its logistical consequences.

So I would say, the primary benefit here is to make the clozapine therapy accessible and acceptable to a broader number of patients, that's the market growth, right? So we're seeing some of that. In which proportion? I think that it's a little early to tell because all we're seeing is scripts coming in. And now we have to try to understand which one of those scripts are new, meaning shorter in duration, right, because a new patient will get the script every week for the first 6 months and the stabilized patients will get a script every month.

So when we look at the total scripts here, it's a mix of one and the other. And it doesn't correlate directly with product consumption because not all patients are equal in those early stages, but we're seeing -- definitely, we can confirm that we're seeing new patients coming to the treatment. The second...

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [10]

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These are patients -- are you offering patient assistance along with this co-pay assistance?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [11]

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Actually, the program in the U.S. is unique and distinct from the program in Canada. In Canada, we own the patient registry. It's a proprietary registry as per Canadian regulations. And therefore, our offering is rolled through our patient registry and our supporting assistance program.

In the U.S., the registry is global and common to all market participants. And therefore, we've developed a program that encompasses all aspects of taking care of a new or existing patient. And that means that the front end is the mandatory safety blood monitoring requirement, but we offer subsequently in that program aspects that are related to the processing of the prescription, helping the patient see the claim be accepted by the payer, dispensing the product and reminding the patient and the prescriber of the need for the next test. So it is really intended to facilitate the job of the health care practitioner and to make sure that the patient remains on treatment.

All those elements, otherwise, especially in the U.S. marketplace, can constitute a bit of an obstacle course. We try to make it simple for them. Most of those features are optional. We're not there to impose a one size fits all. Physicians keep their freedom to prescribe and whether or not they want to use in whole or in part the entire program. So that's pretty much the essence of the pilot and the conclusions we'll be drawing will be on every facets and the benefit that it provides, the feedback we're getting, but also the economics that we think we can make work.

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Operator [12]

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Your next question comes from the line of Justin Keywood with GMP Securities.

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [13]

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I just wanted to clarify on the drawdown of the inventory of Clozaril in Canada. Should we expect the volumes to start normalizing in the near term? Or will this still maybe happen over the next quarter or 2?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [14]

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Yes. We think -- Tim and I will comment. We think the bulk of it is behind us because we've seen little bumps in the drawdown. But Tim, do you want to comment further?

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Tim Hendrickson, HLS Therapeutics Inc. - CFO [15]

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I would agree with that. I think we're -- most of that should be behind us. Remember, this is a dynamic that's playing out at each of -- a number of institutions. And so they each are adjusting on their own timing. But I would think that the bulk of this is behind us. And we expect that over the longer term, our -- the fundamentals that relate to the growth in the number of patients under treatment is what will drive the results.

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [16]

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Okay, that's helpful. And then on the Vascepa and the U.S. AdCom next week, will the outcome direct the investments to start in hiring those initial 20 or 22 sales reps? Or will this maybe wait until after the regulatory responses near year-end?

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Gregory David Gubitz, HLS Therapeutics Inc. - Co-Founder, CEO & Director [17]

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Sorry, Justin. Are you saying that will we start hiring people based on -- the sales reps based on the results of the AdCom meeting?

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [18]

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Yes, or any other investment kind of strategies around the potential launch in Canada?

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Gregory David Gubitz, HLS Therapeutics Inc. - Co-Founder, CEO & Director [19]

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Yes. Unlikely. Of course, we can't prejudge. I mean, we could be surprised, but we think that the clinical benefit of the product has been pressure tested a few times. It's not going to go away. So we need to see what comes out of it. What really will define our next steps in terms of the timing of onboarding the sales force is more related to our local Canadian interaction with the regulators, the progress of the review and the last few phases that are typically indicative of where we're going in terms of outcome and where we could be landing in terms of the definition of the label.

We expect that the benefit -- and in an essence, the indication as requested should remain wholesome. If it didn't, could we or should we revise how we go about the deployment? It's a possibility. But at this point in time, we're just going to get those -- wait and see those elements unfold, see what the outcome results in next week, whether it could influence Health Canada or not and take it as we go.

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [20]

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Got it. And given that Vascepa has already commercialized in the U.S. for the niche part of the population, I would assume that there will still be some preparation for approval of the current indication. And just under that scenario, would you have any idea of what the sales force could look like for that indication versus a much broader expansion?

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Gregory David Gubitz, HLS Therapeutics Inc. - Co-Founder, CEO & Director [21]

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I'm sorry, I'm not sure I'm getting. What is the, let's call it, the smaller indication that you're alluding to?

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [22]

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Yes, yes.

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [23]

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L

Sorry, Justin. Maybe you could repeat the question. We're not quite sure what the question is.

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [24]

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Sure. So Vascepa is obviously commercialized for the portion of the population with the severe triglyceride levels?

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Gregory David Gubitz, HLS Therapeutics Inc. - Co-Founder, CEO & Director [25]

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Triglycerides, yes. Okay.

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [26]

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Yes. Yes. So assuming that, that's kind of a base case scenario, would that not require a sales force in Canada? And how would that ramp up with a much broader label?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [27]

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Okay. Yes. Well, I just want to clarify. We have elected not to file Vascepa for the reduction of very high triglycerides.

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Justin Keywood, GMP Securities L.P., Research Division - Director of Equity Research [28]

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Okay.

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [29]

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We weighted on purpose a full year for the REDUCE-IT trial results. Had they not been as good, we might have proceeded, but we decided to wait. And given the superiority of the label in cardiovascular protection, this is what we're moving forward with. This is what we have filed. And what could result is the approval as requested or in a modified fashion, we'll have to see. But it's very unlikely that we would get a very high triglyceride reduction label since we didn't request it.

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Operator [30]

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Your next question comes from the line of Noel Atkinson with Clarus Securities.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [31]

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Firstly, you mentioned in the remarks that your initial sales force for Vascepa is likely going to be larger than what you previously planned. Can you talk a little bit about the time line, assuming that there is a positive result out of Health Canada for it? Can you talk a little bit about the time line for getting on formularies for reimbursements, kind of how you see this rolling out over the first year and whether having a larger initial sales force can sort of accelerate prescription volumes in those first few months after launch?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [32]

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Yes, there are elements we control and some that we don't. Starting with the private versus public payers, I think it's a well-known fact that private payers are usually pretty swift in adding to their formulary new drugs, especially if they're value-added or they meet an unmet need.

Just remember that those members or corporations or employees that are paying for their drug benefit and they expect that drug benefit to be current and state of the art. So we're thinking here, I would say, 0 to 6 months. It could sometimes go up to 9 months for private payers to cover the drug. But in our case, we think 0 to 6 months, we'll have the bulk of them.

The public payers are typically slower. And the reasons are process-related. Those process take time. There are windows that you need to meet and there's a timing requirement. But there's also, I would say, sometimes a bit by design. They just pace themselves and making sure they make health economic evaluations. In that case, I would say, rapid acceptance on public formularies could take 12 to 15 and up to 18 months. Normal would be 24 to 30 months. We think we're likely to fit in the former category. Here, again, because of the benefit, because of the strong response of various associations in the U.S. and recognizing the benefit, including those in guidelines. We think that in Canada, it's likely that the similar pattern would follow.

There was another aspect to your question related to -- sorry, the rate of uptake?

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [33]

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Right. So whether having a larger initial sales force than you previously planned? What the impact is?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [34]

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Yes. Well, when we think of launch year, we are thinking of the segment within the market that will be less encumbered and will be able to get into motion, prescribe and see that prescription be met with a coverage and reimbursement. And this means that when we think of deploying our sales force, we're always thinking of, first of all, where are likely to be those privately covered patients, who are the prescribers that are actively involved in treating that unmet need. And that's where we will focus our effort to get some traction.

We're -- as we're trying to generate prescription, one thing we try to avoid is to generate prescriptions that would not be filled because patients don't have coverage. So it's a bit of a fine dance, but it's one that we can resolve with proper analytics and data shaping. But our firepower will be concentrated on physicians that are likely to act and can act and patients that are likely to be covered by their private plans.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [35]

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Okay, great. And then just secondly, I might have missed this, so I apologize. There was a discussion in initial remarks about potentially having the Trinomia submission slip a bit into early 2020. Do you see that at all sort of impacting the launch data from where you thought the launch date would be before?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [36]

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No, not really. Launching Vascepa goes a long way for Trinomia. We're getting acquainted with the target where we're gaining credibility, introducing a second product in a time frame that follows about a year the launch of Vascepa is actually pretty ideal because Vascepa is worthy of all the attention and care that we need, and Trinomia will come at the right time and benefit from all, call it, that company and brand equity that we're creating. So we think that this will do dog tail quite nicely.

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Operator [37]

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Your next question comes from the line of David Martin with Bloom Burton.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [38]

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Just wanted a clarification on a couple of things. You mentioned a large order in second quarter of Clozaril, in Canada, that was delivered in Q3. Was that revenue recognized in Q3?

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Tim Hendrickson, HLS Therapeutics Inc. - CFO [39]

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David. Yes, it was.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [40]

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Okay. So if we took out the impact of the lumpy order and the impact of the inventory drawdown, what would be the sales of Clozaril in Canada on the basis of patient use of the drug? Like what should we look at as a normal sales amount for the drug in Canada for this quarter?

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Tim Hendrickson, HLS Therapeutics Inc. - CFO [41]

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Okay. A couple of things to address there. I think if we look at the year-to-date results, which will kind of sort of take out the impact of the shipments at the very end of Q2 that were recognized in Q3, we basically have a dynamic where, in Canadian dollar terms, the Canadian Clozaril business is down 4% on a year-to-date basis, and yet we have a dynamic where the patient numbers are consistently growing at 2-plus percent.

And so I would think that as we expect that this transitory adjustment as through in most of the Ontario hospitals. And so that should be -- if not wrapped up now wrapped up very soon, and then you'll see it returning back to around levels that we were seeing in the year-ago period, perhaps not including the seasonally strong Q4 last year and that's probably in that range. In U.S. dollar terms that we report, that's in the range of north of $7 million a quarter. Obviously -- for Canada, obviously, depending on what happens to FX since we report in U.S. dollars.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [42]

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Okay, okay. And then in our model, we had expected or forecast that your sales and marketing expense will build faster in advance of the Vascepa launch. So your sales and marketing expenses were lower than what we had forecast. I'm wondering have you done any hiring yet of those 20 reps in advance to train them and get them ready or have no reps being hired? And what about on the marketing side? Is -- have you stepped up spend on Vascepa marketing at this point?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [43]

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Yes. So at this stage, we have not hired any of our future cardiovascular specialty sales rep. We have, however, hired -- I think it's 15 headcount in total, most of which are commercial managerial levels, product analytics or scientific. We do have medical and scientific liaisons that have been hired and have been deployed. And therefore, in the context of the launch, while this strictly speaking is not sales and marketing. It's part of the activity that are uncircumventable that we need to do to disseminate knowledge of other disease states and all other aspects of the scientific environment. So I hope this gives you a sense of magnitude. We have about 15 additional headcounts onboard. We will be trigger ready comes the unfolding of this approval in the last few weeks of the year so that we can, comes February, have a trained and deployed sales force to hit the ground and call on the relevant physician.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [44]

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Okay. My last question. You had some development work on Trinomia before you filed for it. Perseris, it seems like you're filing quicker on that. There was no development work you had to do on that?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [45]

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No, in both cases, we were uptaking the bulk of the dosages coming from the developer. In the case of Trinomia, we needed to do a comparison between the TRI-COMBO and the reference products in Canada. It's a bioequivalence trial, so it's not record science, but the complexity comes from the usage of 3 simultaneous product in terms of dosage, measurements, comparison. So that's the scientific intensity of that process.

In the case of Perseris, it's about shaping the data that was used in the U.S. so as to meet the requirements of the regulators in Canada. So similar but somewhat lighter in scope.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [46]

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And for Trinomia, have you fallen within the goalposts of bioequivalence for each of the 3 components?

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Gilbert Godin, HLS Therapeutics Inc. - President & COO [47]

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We're right in the middle of the crunching of the data. And so I think that -- I will ask you for just a little bit more patience. We think that we'll be in a position to file before the end of the year. So those elements will actually recap and provide an answer to your question.

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Operator [48]

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There are no further questions in the queue at this time. I will turn the call back over to Mr. Gubitz for closing remarks.

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Gregory David Gubitz, HLS Therapeutics Inc. - Co-Founder, CEO & Director [49]

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Thanks, operator, and thank all of you for participating on today's call. I would look forward to speaking with you and reporting to you in the coming quarters. Bye-bye.

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Operator [50]

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This concludes today's conference call. You may now disconnect.