Good morning and welcome to the Q3 Fiscal 2024 Financial Results Conference call for HLS Therapeutics. At this point, I would like to turn the call over to David Mason, Investor Relations, for the introductory remarks.
Good morning, everyone, and thank you for joining us today. With me in the room on the call, we have Craig Millian, Chief Executive Officer, John Hanna, Chief Financial Officer, and Brian Walsh, Chief Commercial Officer. Earlier this morning, we issued a news release announcing our financial results for the three and nine months ended September 30, 2024. This news release, along with our MD&A and financial statements, is available on our website and on SEDAR+. Please note that slides accompanying today's call can be viewed via the live webcast, a link to which is available in our earnings press release and at our 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 our Annual Information Form, which has been filed on SEDAR+ at www.sedarplus.ca. During the call, we will refer to Adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed by IFRS. Adjusted EBITDA is defined in our press release and annual filings that are available on SEDAR+ and on our 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. Millian. Please go ahead.
Thanks, Dave. Good morning, everyone, and thank you for joining us. On our call today, I'll review third-quarter highlights. John will follow with a more detailed look at our financial results, and then we'll hold a Q&A session. Also joining us for today's Q&A is Brian Walsh, our Chief Commercial Officer. Financial results for the third quarter included revenue of $14.1 million, Adjusted EBITDA of $4.1 million, and cash from operations of $1.5 million. Q3 saw the continued growth of our promoted products in Canada, driven by the strongest quarterly growth of the year for Vascepa. Our net sales in Canada grew 9% in Q3 over the prior year, and that's 11% growth in constant currency. Vascepa's year-over-year net sales increased 28%, or 30% in constant currency, and were up 13% over the second quarter.
At the same time, we further reduced our Q3 operating expenses by 15% over prior year, excluding cost of goods, and we made a significant debt repayment to strengthen our balance sheet as we work towards increasing future cash flow and financial flexibility. Since the start of the year, we've grown product sales while reducing operating expenses by 10%. We've also lowered debt on our balance sheet by more than $18 million. This puts us in a much stronger financial and operating position entering 2025 than where we started the year. Illustrating the health of our core business, if we take out royalty revenue and consider Adjusted EBITDA based solely on product sales and related expenses, Q3 Adjusted EBITDA would have grown 55% year- over- year. This is relevant in that royalty revenues will become a much smaller part of the baseline when calculating growth in future quarters.
Now, before moving on to Q3 brand performance, I wanted to provide a brief update regarding my leadership team. I'm pleased to formally announce that we have removed the interim tag from his title, and John Hanna has been appointed as our permanent Chief Financial Officer. In addition, Brian Walsh, who joined HLS last summer as our Head of Commercial, has been promoted to Chief Commercial Officer. Both John and Brian have been instrumental over the past year in helping to drive significant changes at HLS, strengthening both our operating performance and financial foundation. I believe we are building the right leadership team and organizational capabilities to both optimize our current performance as well as further scale our business in the future.
Now, moving on to brand performance, I'll start my Q3 review with a look at Vascepa, which had its strongest sales growth quarter of the year with net revenue up 30% in constant currency. Our brand objectives have been to drive demand, reduce expenses, and stabilize the public-private payer mix. As a result of our efforts, the Q3 loss for Vascepa was $0.6 million, a considerable improvement from the $1.6 million loss in Q2 and the smallest quarterly product-related loss since launch. As I've mentioned on previous calls, we expect Vascepa to make a positive brand contribution to Adjusted EBITDA starting in Q4 of this year. Importantly, cost savings have not come at the expense of growth. Vascepa unit demand grew 45% in Q3, and along with consistent prescriber growth of 66%, reflects the ongoing health of the brand.
In Q3, we took important steps to finish the year strong and to drive profitable growth for Vascepa in 2025 and beyond. One significant change was to bring primary care sales activities in-house from Pfizer. This transition went smoothly and was completed by the end of August. We maintained our growth rate throughout Q3, even while working through the handoff process, which speaks to the efforts and professionalism of both the HLS and Pfizer teams. Our new model is built for both efficiency and effectiveness. We are focused on three key elements to drive profitable growth. One, a renewed emphasis on driving new patient starts. Two, an increased focus on physician practices with a high number of privately insured patients. And three, providing reimbursement and patient support programs to augment our selling efforts.
With our new model, we're covering over 80% of all Vascepa prescribers, as well as over 90% of prescribers who have initiated one or more new patients within the last 12 months. Despite a considerable reduction in total sales force size, this model still provides coverage of active Vascepa prescribers that's comparable to what we had previously with Pfizer. Approximately two-thirds of our sales force effort will be focused on existing prescribers. Here, we want to increase prescribing depth among those physicians who are initiating new-to-brand patient starts. The other one-third of selling activity is allocated to targeting those high-potential writers who have yet to prescribe. We estimate that bringing primary care in-house will result in annual net savings of about $4 million. Importantly, we don't believe these savings will come at the expense of growing Vascepa further. We're confident in our new selling model for five key reasons.
Number one is coverage. We still maintain high level of coverage with existing prescribers and high-potential non-writers. Number two is targeting. We are incorporating new data sources to improve the return on investment of our selling efforts. One example includes leveraging a new data set that captures payer dynamics at the practice level. This has enabled us to increase focus on the private payer opportunity, where most plans have broader patient eligibility criteria, a simpler reimbursement process, and a higher value per script. Number three is focus. Brand awareness is high in primary care due to Pfizer's previous activities. That said, Vascepa is our only focus on each sales call, whereas the Pfizer primary care reps were responsible for detailing multiple products across different therapeutic areas. Number four is ownership. We are observing synergies in having our reps as a single point of customer contact within a given geography.
For example, making connections between specialists and general practitioners that previously would require coordination between the HLS and Pfizer teams can now be handled by a single sales professional. Finally, number five is flexibility. Our ability to pivot more quickly on messaging, targeting, and other sales tactics is now enhanced. A recent example is an increased focus on the significant cardiovascular death benefit from REDUCE-IT, which is a highly differentiating clinical message for Vascepa. Beyond these important changes to our selling model, we also continue to make progress on reimbursement and patient retention. We gained public access in Alberta in August, which brings our national coverage to more than 90% of Canadian lives covered by public payer plans. It's still early days in Alberta, but we are encouraged by the progress so far, particularly as it relates to recent growth in new patient starts.
In Ontario and Quebec, our dedicated field nurses continue to be a resource to physician offices in helping manage the reimbursement process. In offices that utilize these resources, we see higher approval rates and reduced waiting times for new patients. To improve patient retention, we enhanced our copay program in May with a particular focus on privately insured patients who are more likely to drop off therapy due to higher copays. While it is still in the early days of the program, initial results are encouraging in demonstrating a higher level of retention. Improving the retention rate for privately insured patients should also help stabilize the payer mix. So to sum up on Vascepa, we are excited to regain full responsibility for all sales activities. The sales force transition went smoothly, and we have continued to see unit volumes steadily grow in September and October.
We expect Vascepa to deliver a positive brand contribution to Adjusted EBITDA for the first time starting in Q4. As a reminder, Vascepa has a long patent runway into the late 2030s, and as such, we believe it will be a profitable growth driver for HLS for many years. Looking now at Clozaril, our Canadian business continues to deliver encouraging results with Q3 up about 1% year- over year in constant currency, while year-to-date revenue is essentially flat. With a positive start to Q4, we remain on track to stabilize or even modestly grow the Canadian Clozaril business this year, driven by our regional strategies in Ontario, Quebec, and Western Canada. In Quebec, Bill 92 limits the ability of prescribers to start new patients on branded Clozaril.
Therefore, we recently shifted from a traditional selling approach that focuses on new patient acquisition to a model focused on retaining current Clozaril patients. We believe this new approach is working. Since adopting our new model earlier this year in Quebec, Clozaril has seen the lowest decline in net patients in that province since Bill 92 came into effect. In Western Canada, we continue to drive market share expansion, and in Ontario, we are leveraging HLS's strong leadership position. As a result, our performance throughout Canada has more than offset small losses in Quebec. Q3 Clozaril patient growth in Canada was 1.8%, while unit volumes were up about 1% versus prior year. This was driven by patient growth of more than 15% in British Columbia and 3% in Ontario, offsetting patient decline of about 3% in Quebec.
Now, in contrast to our Canadian Clozaril business, which is flat to last year, the U.S. performance is behind plan, and we expect U.S. Clozaril net sales will decline about $1 million versus last year. As I've spoken about on previous calls, underlying demand is relatively stable, and the sales decline is mainly due to high wholesaler inventory levels at the end of last year. We expected this inventory overhang could be offset through incremental gains in new business, as well as through a modest price increase that was taken mid-year. We have made improvements to our existing specialty pharmacy program to help drive business, but an additional goal of expanding our U.S. pharmacy network will likely happen in 2025 rather than this year. Now, moving on to our balance sheet and future capital allocation.
While we take steps to grow our product portfolio and improve profitability, we're also strengthening our balance sheet. During the third quarter, we made a significant debt repayment of $14 million using the upfront cash proceeds received from the sale of our Zembrace SymTouch royalty interest. This, along with our regular quarterly principal repayment, has lowered our net debt position to $52.4 million. We plan to continue to deliver and further strengthen our financial position. We also expect to resume share buybacks in early 2025, as well as more aggressively pursue BD opportunities to expand our product portfolio. As it's a question that often comes up, I'd like to touch briefly on business development. HLS is highly regarded within Canada for our capabilities and customer relationships within specialty therapeutic areas, and this positions us well as a potential Canadian licensing partner.
As such, we are interested in pursuing assets that are potentially synergistic with our current portfolio and decreative in the near term. Our current BD targeting approach is based on four criteria. One, identify commercial-stage assets that are available to license in Canada. Two, that are within our therapeutic areas of focus. Three, that we believe have considerable sales potential. And four, that won't require significant upfront capital or a large increase in OpEx. In summary, our intent is to bring in assets at a reasonable cost that could significantly grow the top line while also allowing us to more fully leverage the infrastructure, expertise, and capabilities we have built in Canadian specialty markets, specifically within cardiovascular and CNS.
Now that we've made considerable progress in addressing our cost structure and strengthening our balance sheet, adding to the portfolio will be an important lever to accelerate both top line and bottom line growth beyond 2025. Moving on to 2024 full-year guidance. We are now guiding to a revenue range of $56.5-$57.2 million, lowered from the previous range of $58.5-$59.7 million. The revised guidance is attributable to year-to-date U.S. Clozaril sales being behind plan and from the negative foreign exchange impact on the company's Canadian business due to the persistent strength of the U.S. dollar relative to the Canadian dollar in 2024. As I stated before, the underlying demand fundamentals for U.S. Clozaril remain sound, and the net sales decline is due to what we believe are transient issues.
Sales performance for our Canadian business for both Vascepa and Clozaril is in line with expectations, but reporting results are impacted by the translation to US dollars. Based on the positive progress in reducing operating costs, we are raising the low end of our 2024 Adjusted EBITDA guidance to $16-$16.7 million compared to the previous range of $15.5-$16.7 million. We are also reaffirming that Vascepa will make a positive brand contribution to Adjusted EBITDA starting in Q4. With our release today, we are also providing a preliminary outlook for next year. In 2025, we expect that revenue growth from our promoted product portfolio will be in the high single-digit percentage range, while growth in consolidated Adjusted EBITDA will be in the mid-20s percentage range. We will update our 2025 financial outlook when we release our 2024 year-end results in March next year.
In closing, we are executing our plan and have made necessary changes throughout this transition year to significantly reduce OPEX and debt levels. We believe this sets up well for 2025 with two profitable products generating top-line growth along with a stronger balance sheet than we entered 2024 with. This should allow us to resume stock buybacks early next year and pursue portfolio expansion opportunities. With that, I'll turn it over to John for a closer look at the numbers. John?
Thank you, Craig, and good morning, everyone. Starting with revenue, total revenue for Q3 was $14.1 million compared to $16 million in Q3 last year. Excluding royalties, revenue from marketed products in Q3 was $13.9 million, up 3% from Q3 2023. Canadian product sales of Vascepa and Clozaril in Q3 were up 11% in Canadian dollars. Q3 sales growth in Canada was driven by Vascepa, with revenue up 30% in Canadian dollars. The variance between unit demand growth and net sales growth through Vascepa is due to trends in gross-to-net pricing. As public access ramps in BC and Alberta following the listings there this year, we expect near-term divergence between unit growth and net sales. However, longer term, we expect this to stabilize as public payer growth normalizes. And as Craig discussed, we are also pursuing initiatives to drive private payer patient adoption.
U.S. Clozaril product sales were down 15% in Q3 and 8% for the year-to-date period. As Craig touched on, year-to-date results have been impacted by wholesaler purchasing patterns, including a high level of wholesaler inventory at the start of the year, as well as a key downstream customer switching from one wholesaler to another, a transition that took place during Q3. The result of this change was lower days on hand of inventory at wholesalers at September 30th. This appears to have rebalanced in October. Royalty revenues were $0.2 million in Q3, down from $2.6 million in Q3 last year. As you know, the royalty term for Absorica, what was the largest royalty in the portfolio, came to an end in Q4 last year. In addition, we sold our royalty interest in Zembrace SymTouch at the end of Q2 this year.
While prior period royalty includes royalty revenue contributions from multiple royalty interests, Q3 2024 royalty revenue did not include either Absorica or Zembrace SymTouch. As Craig mentioned, following the sale of Zembrace SymTouch, we used the cash proceeds to make a $14 million principal payment on our term loan in Q3, which will save us approximately $1.5 million in annual interest expense. On the expense side, we continued to make progress in Q3 with reducing our cost base while maintaining the growth potential of the business. Q3 operating expenses, comprising sales and marketing, G&A, and medical, regulatory, and patient support, were down 15%, while promoted product revenue in Canada was up 9%.
With the transition of the primary care sales function to HLS completed at the end of August, we generated some related savings in Q3, but we'll see a more substantive decrease in sales and marketing expense in Q4 this year, which will continue going forward. As Craig said earlier, we expect the transition to save us a net amount of approximately $4 million annually, or about $1 million per quarter starting in Q4. We recorded other costs in the quarter of approximately $0.6 million related to the exiting of the co-promotional agreement. In Q4, we expect another related expense, though of a smaller magnitude. Finally, cost of product sales increased in Q3 due to growth of Vascepa year over year. Q3 Adjusted EBITDA was $4.1 million compared to $5.1 million in Q3 2023.
Excluding royalty revenue, Adjusted EBITDA for Q3 would have been $3.9 million compared to $2.5 million in Q3 last year. This represents a year-over-year increase of 55%. This reflects the growth in our promoted product revenue, as well as steps we have taken to reduce our cost base. For Q3, the direct brand contribution from Clozaril to Adjusted EBITDA was $6.8 million, while the direct brand contribution from Vascepa to Adjusted EBITDA was a loss of $0.6 million. Year-to-date, the direct brand contribution from Clozaril to Adjusted EBITDA was $20.5 million, while the direct brand contribution from Vascepa to Adjusted EBITDA was a loss of $3.8 million. By comparison, for the same year-to-date period 2023, Vascepa brand contribution was negative $6.9 million. We've seen a 45% improvement. Cash from operations in Q3 was $1.5 million compared to $5.4 million in Q3 last year.
Cash and cash equivalents were $17.5 million at quarter-end compared to $22 million at December 31st, 2023. We continued to deliver our balance sheet and made a regular principal repayment on our term loan during Q3 of approximately $1 million in addition to the $14 million debt repayment mentioned earlier. At the quarter-end, the principal balance on the term loan stood at $70 million, down significantly from $88.5 million at the end of 2023. Our net debt at the end of Q3 stood at $52.4 million. In closing, I'm excited to take on the role of permanent CFO at this time in the company's evolution. We expect to end the year with a stronger balance sheet, reduced cost base, and an outlook for two profitable products in 2025.
Overall, the improvements we've made in 2024 put us in a financial position to support the potential of our existing products while providing the optionality to buy back shares and to expand our product portfolio, and with that, I'll pass it back to Craig for his closing comments.
Thanks, John. To sum up, we are making progress in executing our plan, continuing to grow our promoted products while significantly reducing operating expenses and paying down debt in 2024. We believe the changes we're making this year will set HLS up for top-line growth and increased profitability in 2025 and create greater flexibility for capital allocation in the future. That concludes my prepared remarks. At this point, I'll ask the operator to please provide instructions for asking a question. Operator?
Thank you. And ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you're using a speakerphone, please keep your handset set before pressing any keys. Once again, please press star one to join the queue. And again, ladies and gentlemen, if you would like to ask a question, please press the star followed by the number one on your telephone keypad. And your first question comes from the line of George Ulybyshev of Vinclavis Securities. Please go ahead.
Good morning, guys. Thanks for taking our questions and congrats, John, on the appointment. Just a few here on my end. Can you guys talk a little bit about the trends you're seeing when it comes to relative growth in consistent prescribers for Vascepa in each of the four key provinces?
Yeah. Thanks, George, for the question. And since we're also fortunate to have Brian Walsh here with us, our Chief Commercial Officer, maybe I'll see if Brian has some perspectives on the growth in consistent prescribers. And maybe just to start, maybe a definition of what that is, Brian.
Sure. Thanks, George. Thanks for the question. Thanks, Craig. So, consistent prescribers we look at nationally. It's defined by prescribers that have written four out of the last five weeks. We've seen 66% growth versus last year in consistent prescribers. And now, approximately 45% of our prescribers within the quarter were consistent prescribers for Vascepa.
Yeah. Do we see any differences in terms of regional differences? And I'm not sure if we have that information handy, so we might need to follow up with you on that, George.
I think the one metric we look at very closely regionally is more new-to-brand initiators. So for the quarter, we saw the biggest improvement there in BC, as expected, with access, about a 75% increase in new-to-brand writers in BC for Q3 versus Q3 prior year.
Got it. Got it. Understood. Thanks, Brian, and thanks, Craig. Moving on, I guess, also on Vascepa, can you give us a sense of roughly what percentage of new-to-brand patients today are originating from primary care versus specialty care?
Yeah, yeah, yeah, so it's about two-thirds from specialty and one-third from primary care in the most recent quarter.
Okay. Got it. Got it. And just switching gears here a little bit, with respect to the expansion of the specialty pharmacy program for Clozaril in the U.S., what are your plans for that, and what kind of impact are you guys expecting in 2025?
Yeah. So the program that we have in place now has been with a strong partner that's focused on providing access to branded Clozaril, obviously, in the U.S. We've seen that program double in size this year versus last year, now representing about 10% of our units for the U.S. So we expect to be able to continue to grow that program. That program has broadly national reach, but we have some regional pockets of opportunity that we aim to fill in with other mental health specialty pharmacies in the U.S. in 2025. So I think we can expect to see that level of growth within the program, which is offsetting any decline in base business in the rest of the country.
Understood. Understood. That's it for me. Thank you, guys.
Thanks, George.
Thank you, and there are no further questions at this time. I would like to turn it back to Craig Millian for closing remarks.
Great. Thank you. And thanks for participating on today's call. And we look forward to continuing to report on our progress in the coming quarters and speaking with you all again soon. Bye. Have a great day.
Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.