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HLS Therapeutics Announces Q2 2018 Financial Results

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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.

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