Market Overview

HLS Therapeutics Announces Q2 2018 Financial Results

Share:

HLS Therapeutics Announces Q2 2018 Financial Results

Canada NewsWire

  • Revenue of $16.3 million, Net Loss of $0.6 million and Adjusted EBITDA of $11.0 million, which were all in line with expectations
  • Debt refinancing co-led by JPMorgan Chase Bank, N.A. and Silicon Valley Bank; interest savings estimated at $10.0 million per year
  • Establishment of a dividend policy providing for payment of quarterly dividends of CDN$0.05 per common share and declaration of initial quarterly dividend of CDN$0.05 per common share

TORONTO, Aug. 15, 2018 /CNW/ - HLS Therapeutics Inc. ("HLS" or the "Company") (TSX-V: HLS), a specialty pharmaceutical company specializing in Central Nervous System ("CNS") and Cardiovascular markets, announces its financial results for the three- and six-month periods ended June 30, 2018. Unless otherwise noted, all dollar amounts are expressed in United States ("U.S.") dollars.

Q2 2018 and Subsequent to Quarter-End Highlights

  • Revenue of $16.3 million, Net Loss of $0.6 million (loss of $0.02 per common share) and Adjusted EBITDA of $11.0 million, which were all in line with expectations
  • Established a Normal Course Issuer Bid ("NCIB"), to purchase for cancellation up to 5% of the issued and outstanding common shares over a 12-month period
  • Subsequent to quarter-end, refinanced outstanding senior secured debt. Interest rate on the new senior secured term loan is LIBOR plus a range of 2.75% to 3.25% compared to LIBOR plus 9% on the previous credit facility
  • Subsequent to quarter-end, established a dividend policy and declared first quarterly dividend of CDN$0.05 per common share

"Q2 was another period of solid performance from our foundational products, Clozaril® and Absorica®, which again resulted in strong Adjusted EBITDA and positive cash from operations, all in line with our expectations," said Greg Gubitz, CEO of HLS. "We expect top-line results from the Reduce-IT trial by the end of September which could significantly expand the market size and organic growth opportunity for Vascepa in Canada. Vascepa is one of our two pre-registration Cardiovascular products that we believe have transformative potential for HLS. Trinomia, the second product, has already been approved in more than 30 countries. After discussion with Health Canada, we will perform a bridging study between Trinomia and the reference listed drugs in Canada as the next step in the approval process."

"Due to HLS' strong operating performance and cash generation since inception we have paid down $47.1 million, or 25%, of our original debt since 2015. This strong performance and our excellent growth prospects have allowed us to refinance our debt at a reduced principal amount that together with the lower interest rate, will generate substantial interest savings estimated at $10.0 million per year. The HLS Board has chosen to use part of these savings to establish a dividend policy for shareholders declaring an initial quarterly dividend of CDN$0.05 per common share. This highlights the Board's confidence in our current business and future prospects."

"The new debt facilities consist of a senior secured term loan of $100.0 million with an interest rate in the range of LIBOR plus 2.75% to 3.25%, depending on our leverage ratio, and a $25.0 million revolving facility. We also have the ability to request an additional term loan amount of up to $100.0 million to support acquisitions and growth opportunities."

"The refinancing transaction was co-led by JPMorgan Chase Bank, N.A. and Silicon Valley Bank with the participation of National Bank of Canada, Royal Bank of Canada and ICICI Bank Canada. This outstanding syndicate of banks provides an extremely strong base for our future development of the Company."

"Our business development deal flow remains strong for potential in-licensing, product acquisition and M&A transactions. Our main focus is existing revenue streams in compatible therapeutic areas and organic growth opportunities which means in-licensing products that we can grow and promote in either Canada or the U.S. While we are working diligently to close deals, it is not possible to predict the exact timing of any transaction. We will only deploy capital when an opportunity meets our strict investment and operational criteria."

FINANCIAL REVIEW

Revenue

The following table provides revenue segmentation by revenue type and geography for the three- and six-month periods ended June 30, 2018:


Three months ended June 30,

Six months ended June 30,


2018

2017

2018

2017






Product sales






Canada

7,772

7,428

14,531

13,763


United States

4,732

4,600

9,604

8,889


12,504

12,028

24,135

22,652

Royalty revenue

3,801

6,833

5,336

11,762

Total revenue

16,305

18,861

29,471

34,414

Total revenue was lower year-over-year as royalty revenue declined in 2018 compared to 2017. Royalty revenue in 2017 benefited from competitive disruptions and the positive impact of a promotional campaign undertaken by the marketer of Absorica in the U.S. which provided windfall royalties in that year estimated at $10.0-11.0 million.

Product sales in Canada increased 5% in Q2 2018, and 6% year-to-date, benefiting from the Company's active promotion and support of Clozaril. Excluding the impact of currency fluctuations Product sales in Canada for both the Q2 2018 and year-to-date periods would have increased 1%. Product sales in the U.S. market increased 3% in Q2 2018, and 8% year-to-date, due to sales under an authorized generic supply agreement that was not in place in Q1 and Q2 2017, and lower Clozaril sales in Q1 2017.

Royalty revenues for Q2 2018 were $3.8 million, up from $1.5 million in Q1 2018, indicative of a return to levels more consistent with the period prior to the start of the 2017 promotional campaign. This also reflects normal softer summertime seasonal impact on Absorica demand.

Operating Expenses

Operating expenses, which consist of cost of product sales, selling and marketing expense, medical, regulatory and patient support expense, and general and administrative expense, were $5.3 million in Q2 2018, compared to $4.3 million in Q2 2017. For the six-month period ended June 30, 2018, operating expenses were $9.8 million, compared to $8.3 million in the same period last year.

Cost of product sales increased in 2018 due to the additional product supplies made in the first quarter of 2018 under an authorized generic supply agreement.

The year-over-year increase in operating expenses was driven primarily by the addition of public company costs, the development of the HLS team to support the Company's growth plans, a return to more typical patient support and regulatory compliance costs in the U.S. after lower costs last year, and the costs associated with initial work to develop commercial plans for potential new cardiovascular product launches.

Adjusted EBITDA

The year-over-year change in Adjusted EBITDA is due to lower royalty revenue from Absorica and additional operating costs related to the expansion of the business partially offset by the increase in Clozaril product sales described above. Adjusted EBITDA is a non-IFRS measure and is defined below.


Three months ended June 30,

Six months ended June 30,


2018

2017

2018

2017






Net loss for the period

(563)

(734)

(5,439)

(3,766)

Stock-based compensation

123

101

217

177

Amortization and depreciation

8,134

7,884

16,275

15,815

Acquisition and transaction costs

98

18

533

18

Finance and related costs

3,557

6,247

9,124

11,952

Provision for (recovery of) income taxes

(310)

1,085

(1,079)

1,953

Adjusted EBITDA

11,039

14,601

19,631

26,149

Interest Expense and Debt

Interest on the senior secured term loan was $4.0 million in Q2 2018, compared to $4.1 million in Q2 2017. For the six-month period ended June 30, 2018, interest on the senior secured term loan was $8.1 million, compared to $8.3 million in the same period last year. The decrease in interest expense is primarily due to the Company's debt reduction, off-set in part by increases in the LIBOR rate.

A total of $6.3 million of debt was repaid in Q2 2018 bringing the total amount of debt repaid up to June 30, 2018, to $47.1 million. As at June 30, 2018, the total outstanding principal on the senior secured term loan stood at $137.9 million, down from $185.0 million at the Company's inception.

Cash from Operations and Financial Position

Cash generated from operations was $1.7 million in Q2 2018, compared to $5.6 million in Q2 2017. Cash generated from operations for the six-month period ended June 30, 2018 was $15.2 million, compared to $8.9 million in the same period last year. The increase for the year-to-date period is due primarily to the timing of collection of royalty revenue generated from Absorica in Q4 2017 as well as stable cash generation from the Clozaril business.

As at June 30, 2018, the Company had cash and cash equivalents of $45.2 million, up from $36.2 million at December 31, 2017.

SUBSEQUENT EVENT – DEBT REFINANCING

On August 15, 2018, the Company entered into a new senior secured term loan with a syndicate of bank lenders co-led by JPMorgan Chase Bank, N.A. and Silicon Valley Bank. The principal amount of the new senior secured term loan is $100.0 million. In addition, there is a $25.0 million revolving facility that is undrawn on closing. The Company may also request to be provided with incremental loans, for a maximum additional loan amount of $100.0 million to support acquisitions and growth opportunities. The maturity date is August 15, 2023. Interest on the new senior secured term loan accrues at a rate per annum equal to the sum of LIBOR plus a range of 2.75% to 3.25% depending on the leverage ratio of the Company at the time.

Under the terms of the new senior secured term loan, the lenders have security over substantially all the assets of the Company. The Company will be required to repay principal starting at 5% of the principal amount in the first year and increasing to 10% in the fifth year of the term. The Company may also be required to make additional payments from surplus cash-flow, or the Company could choose to repay some or all of the amount outstanding at any time during the term.

Under the terms of the senior secured term loan, the Company is required to comply with financial covenants related to the maintenance of liquidity and coverage ratios.

On closing, the proceeds from the new senior secured term loan and available cash balances were used to repay the Company's existing senior secured term loan in full. The existing senior secured term loan was scheduled to expire on August 11, 2021 and carried interest at a rate per annum equal to the sum of (i) 9.0% plus (ii) the higher of (a) the LIBOR rate for the applicable interest period and (b) 1.0%. Repayment of the existing senior secured term loan ahead of expiration resulted in a repayment premium of $4.1 million.

Concurrent with the refinancing transaction HLS also repurchased for $6.0 million an existing royalty obligation on its future sales from one of the Company's initial lenders.

SUBSEQUENT EVENT – DIVIDEND

On August 15, 2018, the Company's Board of Directors established a dividend policy providing for payment of quarterly dividends of CDN$0.05 per common share.

The Company's Board of Directors declared an initial dividend of CDN$0.05 per outstanding common share to be paid on December 14, 2018, to shareholders of record as of October 24, 2018.

Q2 2018 CONFERENCE CALL

HLS will hold a conference call Wednesday, August 15, 2018 at 8:30 am Eastern Time hosted by Mr. Greg Gubitz, Chief Executive Officer, Mr. Gilbert Godin, President and Chief Operating Officer and Mr. Tim Hendrickson, VP Finance and Administration. A question and answer session will follow the corporate update.

DATE: Wednesday, August 15, 2018

TIME: 8:30 am ET

DIAL-IN NUMBER: (888) 231-8191 or (647) 427-7450

TAPED REPLAY: (855) 859-2056 or (416) 849-0833

REPLAY PASSCODE: 7083287

WEBCAST LINK:  https://event.on24.com/wcc/r/1798005/94248FE18719FC5D278D06A5D5B86451

A link to the live audio webcast of the conference call will also be available on the events page of the investors section of HLS Therapeutics' website at www.hlstherapeutics.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to hear the webcast. The taped replay will be available for 14 days and the archived webcast will be available for 90 days.

ABOUT HLS THERAPEUTICS INC.

Formed in 2015, HLS is a specialty pharmaceutical company focused on the acquisition and commercialization of late stage development, commercial stage promoted and established branded pharmaceutical products in the North American markets. HLS's focus is on products targeting the central nervous system and cardiovascular therapeutic areas. HLS's management team is composed of seasoned pharmaceutical executives with a strong track record of success in these therapeutic areas and at managing products in each of these lifecycle stages.

CAUTIONARY NOTE REGARDING NON-IFRS MEASURES

This press release refers to certain non-IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of HLS's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of HLS's financial information reported under IFRS. HLS uses non-IFRS measures to provide investors with supplemental measures of its operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. HLS also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. HLS's management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess HLS's ability to meet its future debt service, capital expenditure and working capital requirements. 

In particular, management uses Adjusted EBITDA as a measure of HLS's performance.  To reconcile net loss for the year with Adjusted EBITDA, each of (i) "stock-based compensation", (ii) "amortization and depreciation", (iii) "acquisition costs", (iv) "finance and related costs", and (v) "provision for (recovery of) income taxes" appearing in the Consolidated Statement of Net Loss are added to net loss for the year to determine Adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed by IFRS and is not necessarily comparable to similar measures presented by other companies. Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss) prepared in accordance with IFRS as issued by the IASB.

FORWARD LOOKING INFORMATION

This release includes forward-looking statements regarding HLS and its business. Such statements are based on the current expectations and views of future events of HLS's management. In some cases the forward-looking statements can be identified by words or phrases such as "may", "will", "expect", "plan", "anticipate", "intend", "potential", "estimate", "believe" or the negative of these terms, or other similar expressions intended to identify forward-looking statements, including, among others, statements with respect to HLS's pursuit of additional product and pipeline opportunities in certain therapeutic markets, statements regarding growth opportunities and expectations regarding financial performance. The forward-looking events and circumstances discussed in this release may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting HLS, including risks relating to the specialty pharmaceutical industry, risks related to the regulatory approval process, economic factors and many other factors beyond the control of HLS. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause HLS's actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statement or information. Accordingly, readers should not place undue reliance on any forward-looking statements or information. A discussion of the material risks and assumptions associated with this release can be found in the joint information circular of HLS and Automodular Corporation dated February 5, 2018 in respect of the merger of the two companies by way of a plan of arrangement, effective March 12, 2018, which has been filed on SEDAR and can be accessed at www.sedar.com. Accordingly, readers should not place undue reliance on any forward-looking statements or information. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and HLS undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

HLS THERAPEUTICS INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Unaudited

[in thousands of U.S. dollars]






As at

As at



June 30, 2018

December 31, 2017





ASSETS




Current




Cash and cash equivalents


45,237

36,219

Accounts receivable


17,711

25,846

Inventories


1,895

1,354

Foreign currency forward contract


419

Prepaid expenses and other current assets


1,343

1,617

Total current assets


66,605

65,036

Property, plant and equipment


429

441

Intangible assets


289,463

312,659

Foreign currency forward contract


100

Restricted assets


10,573

5,555

Deferred tax asset


888

955

Total assets


368,058

384,646





LIABILITIES AND SHAREHOLDERS' EQUITY

Current




Accounts payable and accrued liabilities


10,911

12,596

Provisions


6,264

6,976

Other financial liabilities


11,421

14,160

Income taxes payable


380

870

Total current liabilities


28,976

34,602

Other financial liabilities


145,536

158,114

Deferred tax liability


9,016

11,548

Total liabilities


183,528

204,264





Shareholders' equity




Share capital


211,148

192,743

Contributed surplus


11,690

12,330

Accumulated other comprehensive income (loss)


(2,247)

5,941

Deficit


(36,061)

(30,632)

Total shareholders' equity


184,530

180,382

Total liabilities and shareholders' equity

368,058

384,646

HLS THERAPEUTICS INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS

Unaudited

[in thousands of U.S. dollars, except per share amounts]




Three months ended June 30,

Six months ended June 30,



2018

2017

2018

2017







Revenues


16,305

18,861

29,471

34,414







Expenses






Cost of product sales


536

527

1,116

952

Selling and marketing


1,046

880

2,010

1,666

Medical, regulatory and patient support


1,176

828

2,153

1,734

General and administrative


2,508

2,025

4,561

3,913

Stock-based compensation


123

101

217

177

Amortization and depreciation


8,134

7,884

16,275

15,815

Operating income


2,782

6,616

3,139

10,157

Acquisition and transaction costs


98

18

533

18

Finance and related costs, net


3,557

6,247

9,124

11,952

Income (loss) before income taxes


(873)

351

(6,518)

(1,813)

Income tax expense (recovery)


(310)

1,085

(1,079)

1,953

Net loss for the period


(563)

(734)

(5,439)

(3,766)





Net loss per share:




Basic and diluted


$(0.02)

$(0.03)

$(0.20)

$(0.15)

HLS THERAPEUTICS INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Unaudited

[in thousands of U.S. dollars]




Three months ended June 30,

Six months ended June 30,


2018

2017

2018

2017






Net loss for the period

(563)

(734)

(5,439)

(3,766)






Item that may be reclassified subsequently to net loss






Unrealized foreign currency translation adjustment

(3,568)

3,091

(8,188)

4,453

Comprehensive income (loss) for the period

(4,131)

2,357

(13,627)

687

HLS THERAPEUTICS INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Unaudited

[in thousands of U.S. dollars]






Share

capital

Contributed

surplus

Accumulated other

comprehensive

income (loss)

Deficit

Total







Balance, December 31, 2017

192,743

12,330

5,941

(30,632)

180,382

Common shares issued

19,905

19,905

Share issuance costs

(1,252)

(1,252)

Shares repurchased

(248)

10

238

Share purchase obligation

(857)

(857)

Stock-based compensation

217

217

Net loss for the period

(5,439)

(5,439)

Unrealized foreign currency







translation adjustment

(8,188)

(8,188)

Balance, June 30, 2018

211,148

11,690

(2,247)

(36,061)

184,530







Balance, December 31, 2016

192,743

11,967

(4,611)

(24,535)

175,564

Stock-based compensation

177

177

Net loss for the period

(3,766)

(3,766)

Unrealized foreign currency







translation adjustment

4,453

4,453

Balance, June 30, 2017

192,743

12,144

(158)

(28,301)

176,428

HLS THERAPEUTICS INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

[in thousands of U.S. dollars]




Three months ended June 30

Six months ended June 30,


2018

2017

2018

2017






OPERATING ACTIVITIES





Net loss for the period

(563)

(734)

(5,439)

(3,766)

Add (deduct) items not involving cash






Stock-based compensation

123

101

217

177


Amortization and depreciation

8,134

7,884

16,275

15,815


Accreted interest

1,603

1,704

3,232

3,432


Fair value adjustment on financial assets and liabilities

(2,225)

888

(2,675)

898


Listing expense

435


Deferred income taxes

(779)

504

(1,668)

506

Net change in non-cash working capital balances

(4,606)

(4,758)

4,810

(8,137)

Cash provided by operating activities

1,687

5,589

15,187

8,925






INVESTING ACTIVITIES





Additions to property, plant and equipment

(66)

(36)

(90)

(36)

Additions to intangibles

(212)

(212)

Acquisitions

(2,325)

(1,825)

(6,650)

(3,650)

Cash used in investing activities

(2,603)

(1,861)

(6,952)

(3,686)






FINANCING ACTIVITIES





Common shares issued

19,470

Share issuance costs

(123)

(1,699)

Shares repurchased

(238)

(238)

Repayment of senior secured term loan

(6,277)

(1,531)

(13,381)

(5,401)

Increase in restricted cash

(500)

(1,002)

(2,500)

(1,702)

Lender royalty payment

(125)

(121)

(237)

(226)

Cash provided by (used in) financing activities

(7,263)

(2,654)

1,415

(7,329)






Net increase (decrease) in cash and cash equivalents 






during the period

(8,179)

1,074

9,650

(2,090)

Foreign exchange

(409)

(263)

(632)

(335)

Cash and cash equivalents, beginning of period

53,825

34,527

36,219

37,763

Cash and cash equivalents, end of period

45,237

35,338

45,237

35,338

SOURCE HLS Therapeutics Inc.

View original content: http://www.newswire.ca/en/releases/archive/August2018/15/c7559.html

View Comments and Join the Discussion!