Morning and welcome to the Q2 2025 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 on the call is 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 six months ended June 30, 2025. 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 by the webcast, a link to which is available in our earnings press release and at our website on the Events and Presentations page. Certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated.
Risk factors that could affect results are detailed in the company's annual information form, which has been filed on SEDAR+. 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 quarterly highlights and progress against corporate priorities. Brian will go into further detail on product performance, along with an update on new product launch preparations. John will follow with a detailed look at the numbers and capital allocation. Following John, we'll hold a Q&A session. Looking at the second quarter and the year so far, we are making progress against our corporate objectives to drive profitable growth in our base business, strengthen our balance sheet, and lay the foundation for future growth via portfolio expansion. Our year-to-date results continue to reflect the successful transformation of HLS into a more efficient and financially sound organization poised to resume growth. I'll structure my remarks today around three key themes that Brian and John will expand upon in their sections.
First, executing on our base business and driving operational performance. Second, building a leading Canadian-based cardiovascular franchise and preparing for launch excellence with Nexletol and Nexlizet. Third, the continued strengthening of our financial foundation, which in turn increases our optionality to deploy capital. Let's start with a look at our Q2 and year-to-date business performance. Revenue in the quarter was $14.2 million and $26.8 million for the year-to-date period. Product revenues for Canada and the U.S. are up year-to-date in local currencies. Consolidated results reported in U.S. dollars have been impacted by FX headwinds, as well as a decline in royalty revenue over the first half of the year versus last year. Of note, in the second half of 2025, year-over-year royalty revenue comparisons should stabilize. Adjusted EBITDA grew by 21% in the second quarter and 29% for the year-to-date period.
This strong growth reflects our continued focus on driving product performance while optimizing spend. Greater operating efficiency, along with progress in delevering our balance sheet, has driven improved cash flow. Cash from operations grew more than 80% in Q2 and almost 150% year-to-date. Overall, we're executing on our business plan and remain on track to achieve full-year guidance. The second theme I'd like to touch on is the build-out of the HLS Therapeutics Canadian cardiovascular franchise. The additions of Nexletol and Nexlizet, alongside Vascepa, will further establish HLS as a leading Canadian-based company focused on cardiovascular risk reduction. Nexletol and Nexlizet represent the type of assets we've been targeting through our business development efforts. These medicines are a strong strategic fit with the HLS product portfolio.
They've been de-risked from a clinical and regulatory perspective, and they are being successfully commercialized globally and are already on track to generate hundreds of millions of dollars in global sales. Successfully launching these new medicines in Canada will be mission-critical to driving the next phase of growth for HLS, as we believe they have the potential to more than double the size of our cardiovascular business. Importantly, commercializing these products should require only a minimal increase in operating expenses as we leverage existing capabilities and don't plan on adding headcount ahead of launch. Post-launch, we'll take a stage-gated approach to sales and marketing spend as we gain payer access and traction with prescribers. From a timing perspective, we expect approval by Health Canada before year-end and then to launch commercially in the second quarter of 2026.
The third theme is the focus on strengthening our balance sheet, which will provide greater flexibility in the future. We've made significant progress paying down debt and lowering our interest expense over the past year, and this will continue to be a focus. Our strengthening balance sheet and improved operating cash flow will allow us to pursue multiple avenues to value creation. We plan to continue stock buybacks at attractive valuations and to further pay down debt while also pursuing strategic growth opportunities that fit within our business development framework. In summary, at the mid-year mark, we are making progress against our operating objectives and our long-term goal of building a more financially fit organization that is poised for growth while establishing a leading portfolio of oral cardiovascular medicines in Canada.
With that, I'll turn it over to Brian to provide more detail on our commercial performance and our expanded cardiovascular portfolio. Brian?
Thanks, Craig, and good morning, everyone. Let me start with an update on Clozaril performance across both markets. In the U.S., we saw growth both in the quarter and year to date. This was due to patient growth in our Specialty Pharmacy Program initiative that in the first half of this year more than offset modest patient attrition in other channels. We see potential to further leverage our U.S. Specialty Pharmacy Program to help stabilize Clozaril in the U.S. In Canada, our active patient count across the country remains stable, for which we have full visibility through our C SON Program. We did see net sales below expectations in the quarter, primarily driven by lighter than expected unit volumes purchased by hospitals and wholesalers.
The unit volume softness was tied to a few key accounts, but these accounts have stable patient numbers, so we are confident the variance is mostly attributed to order patterns. We continue executing our regional strategies, maintaining high market share in Ontario, growing market share in Western Canada, and sustaining strong patient retention rates in Quebec. The overall fundamentals of our Canadian and U.S. Clozaril business remain solid, and we expect a strong second half of the year. Turning to Vascepa, as you'll recall, we completed the transition from Pfizer in September of last year. Q2 marked our third full quarter with complete sales responsibility for Vascepa. In that time, we have grown new patient starts among specialists, while we've seen only modest decline in the number of new patient starts from GPs as we integrate the responsibility for those customers into our salesforce targeting.
As I shared on our last call, we also made purposeful changes to strengthen our HLS team during the first half of this year, both at the field leadership and sales representative levels. We strongly believe it was imperative to make these changes to ensure we are best positioned for future growth with Vascepa, and we are prepared to successfully launch our new products. Personnel changes did lead to some short-term disruptions in customer engagement in the impacted sales territories. The majority of these territories had been underperforming but represent a significant percentage of sales potential. We now have these territories filled, and we have attracted some outstanding talents. I want to reinforce that we made these changes with a focus on what is best for the long-term performance of Vascepa and our CV franchise, given the upcoming product launches in Q2 next year.
We are very excited about the engagement and experience of talent we are attracting to HLS, and we expect to start realizing the full benefits of these improvements by the fall as our team reaches full productivity. On the access and reimbursement front, on July 2, we announced public coverage in Nova Scotia. With the addition of British Columbia and Alberta in 2024, we have added more than 25% of the Canadian public opportunity in just the past 18 months. This expanded coverage ensures that nearly all eligible Canadians can access Vascepa. We are also making progress on initiatives targeting the private payer segment. We're seeing increased retention rates among private pay patients as a result of our improved co-pay assistance program. In addition, since last September, we have been deploying our salesforce with increased focus on targets with a greater private payer potential.
As a result of these initiatives, we are making progress in stabilizing our payer mix. Now to the demand metrics for Vascepa. Unit growth in Q2 was 23% and 25% for the year-to-date period. This is slightly softer unit demand than we forecasted, but the year-to-date net sales growth is within our guidance range. Territories with consistent sales coverage had significantly stronger growth compared to those that were disrupted. This gives us confidence that we will see improvements in performance as our team gets back to full capacity. With all the changes we've made over the past year, our focus has been on driving profitable growth. We are improving the profitability of the product, with Q2 being the third straight quarter that Vascepa has made a positive contribution to adjusted EBITDA.
Now let me turn to our exciting Nexletol and Nexlizet opportunity, which represents a transformational addition to our cardiovascular portfolio. These are the commercial product names used in the U.S., though we expect some variation once the products are approved by Health Canada. For simplicity, we'll continue to use these U.S. commercial names for the time being. Nexletol is a daily oral non-statin treatment containing the novel compound bempedoic acid. Nexlizet combines bempedoic acid with ezetimibe in a single daily pill. These products add a second pathway to cardiovascular risk reduction that's completely independent of Vascepa's mechanism of action. What makes these products compelling is that they address a very large addressable market focused on LDL cholesterol reduction. LDL is the ultimate biomarker for cardiovascular risk and is integrated into every clinical guideline and physician practice pattern. This gives us a clear, well-established entry point into cardiovascular conversations with physicians.
The clinical trial results have been strong, with Nexletol shown to reduce LDL-C by 17%- 18% and Nexlizet by 38%. They significantly lower LDL levels, but without the muscle-related side effects that prevent many patients from taking adequate statin doses. This addresses a significant unmet medical need, with more than an estimated half a million Canadians potentially benefiting from these medicines. In terms of where these products fit in the treatment paradigm, physicians typically start with a statin, then add ezetimibe if additional LDL lowering is needed. If patients still are not at goal, the current standard of care typically moves to PCSK9 inhibitors, which are injectable and expensive, generally reserved only for the highest risk patients.
Nexletol and Nexlizet can slot in ahead of PCSK9s in this treatment path, providing a simpler and lower-cost oral option for patients who need additional LDL lowering but aren't ready for or appropriate for injectable therapy. Our pre-launch activities are well underway. We're building our dossier for pricing and reimbursement discussions, and we're deepening our engagement with key opinion leaders who are enthusiastic about the clinical profile of these products. As a reminder of our timeline, we expect Health Canada approval by the end of 2025, with launch planned in Q2 of 2026, by which time we expect to have product available and have also achieved meaningful coverage with private insurance companies. Engagement on reimbursement with the public sector will continue throughout 2026, and we hope to achieve favorable listing agreements with initial provinces in early 2027.
The integration of Nexletol and Nexlizet with our existing Vascepa business creates powerful synergies. The Canadian Cardiovascular Society's guidelines recommend both further LDL lowering for patients not at goal and consideration of Vascepa treatment for patients with elevated triglycerides as a marker of increased risk for a CV event. With our expanded portfolio, we will be leading the way in cardiovascular risk reduction in Canada with an all-oral portfolio. Our teams are excited for the opportunity to partner with healthcare providers to support a much broader set of patients in reducing their remaining cardiovascular risk. With that, I'll turn it over to John for a detailed look at our financial performance. John?
Thank you, Brian, and good morning, everyone. In my section, I'll focus on Q2 and year-to-date results and the progress made to strengthen our balance sheet and improve capital allocation flexibility. Starting with revenue, total revenue for Q2 was $14.2 million compared to $14.5 million last year and was up sequentially from $12.6 million in Q1 of this year. Excluding royalties, revenue from marketed products in Q2 was $14 million compared to $14.1 million in Q2 last year, and year-to-date was $26.4 million, up from $25.9 million in the same period last year. You may recall that in Q2 last year, we had a bump in revenue due to certain orders shifting from Q1 to Q2 because of the Easter holiday timing. For this reason, we view the year-to-date numbers as a more relevant measure for the comparison of year-over-year revenue performance.
Canadian product sales of Vascepa and Clozaril in Q2 were flat and were up 6% in local currency for the year-to-date period. U.S. Clozaril sales in Q2 were up 1% and year-to-date were up 2%. Looking at the remainder of the year, we typically see greater than 50% of total annual sales occurring in Q3 and Q4. We expect this pattern to continue in 2025, with Q4 typically being our strongest quarter. On the expense side, we continue to show progress reducing our cost base, helping to drive strong margin and cash flow performance. Q2 operating expenses, comprising sales and marketing, G&A, and medical regulatory and patient support, were down 18% and were down 19% for the year-to-date period. This demonstrates the positive impact of the operational efficiency efforts we made in 2024.
While selling and marketing expenses will remain below 2024 levels throughout the year, we expect a modest bump for the remainder of the year as we have filled vacancies on the cardiovascular sales team that Brian mentioned. Finally, cost of sales increased both in Q2 and year-to-date, largely due to demand growth in Vascepa. Q2 adjusted EBITDA was $5.2 million, up 21% compared to Q2 last year. Year-to-date adjusted EBITDA increased 29%. Excluding royalty revenue, those increases would have been 31% and 47%, respectively. For Q2, the direct brand contribution from Clozaril to adjusted EBITDA was $7.1 million, while the direct brand contribution from Vascepa to adjusted EBITDA was $100,000. Year-to-date, the contributions for Clozaril and Vascepa were $12.9 million and $112,000, respectively. Of note, in the Q2 and year-to-date periods last year, Vascepa's direct brand contribution to adjusted EBITDA were losses of $1.6 million and $3.2 million.
Cash from operations in Q2 was $4.6 million, up 83% compared to Q1 2024. Year-to-date, cash from operations was $8.1 million, up 147% versus the same period last year. Cash from operations has increased due to the factors I've described and has also benefited from lower interest expense, which was down $1 million, or 41% compared to Q2 last year, and down $1.6 million year-to-date. To sum it up, a big part of the story of our transformation over the past 18 months is the growth in adjusted EBITDA ex royalties and improved cash flows. As can be seen on this slide in our presentation, on a trailing 12-month basis, after bottoming out in late 2023, early 2024, we've seen consistent quarterly improvements in adjusted EBITDA ex royalties.
Our focus on operational improvements has restored our profitability trajectory and generated the strong cash flows that are enabling our balanced capital allocation approach today. This balanced approach for capital allocation allows us to accomplish multiple objectives. First is to continue to delever the balance sheet by paying down debt. In Q2, we made principal repayments totaling $8.5 million in the quarter and have repaid $11.4 million for the year-to-date period. Progress made in the last few quarters, which includes improving our cost base and operational results, has enabled us to use the cash on our balance sheet in more productive ways. This led to the large Q2 principal repayment. Second is the return of capital to shareholders via share buybacks. We began to buy back shares late in Q1 and continue to do so during Q2.
So far this year, we've purchased more than 308,000 shares at a cost of $1 million at an average price of CAD 4.56 per share in Canadian dollars. We continue to believe that the shares represent attractive value for repurchasing at these levels. Thirdly, in deploying capital to expand our portfolio. With Nexletol and Nexlizet, we made an upfront payment of $1 million in Q2 and expect to pay an additional $1 million upon Health Canada approval towards the end of this year. The agreement also includes customary royalties on future sales and potential milestone payments tied to pricing and reimbursement and the achievement of significant commercial sales targets. Beyond the initial $2 million in payments this year, we don't anticipate any additional milestone payments prior to 2027 at the earliest.
Looking at the balance sheet at the quarter end, the principal balance on the term loan stood at $56 million, down almost $29 million, or 34% from $84.9 million at the end of Q2 last year. As a result of our continued deleveraging, net debt stood at $43.8 million at quarter end. Finally, cash was $12.2 million at quarter end compared to $17.5 million at the end of 2024, with the difference reflecting the $11.4 million in principal debt payments made this year, offset in part by growth in cash from operations. I'll pass it back to Craig for his closing comments.
Thanks, John. In summary, our results so far this year reflect progress against our key priorities. We're driving performance in our base business, maintaining strong margins, and generating cash. We're positioned for our next phase of growth as we actively prepare to expand the HLS Canadian Cardiovascular franchise with the 2026 new product launches. A strengthened balance sheet will provide increased flexibility to pursue additional value-creating opportunities. That concludes my prepared remarks, and at this point, I'll ask our operator to please provide instructions for asking a question. Operator?
Thank you, sir. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touch-tone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, we do ask that you please lift the handset first before pressing any keys. Please go ahead and press star one now if you do have any questions. Your first question will be from George Ulybyshev at Clarus. Please go ahead, George.
Good morning, guys, and thanks for taking our questions. For Vascepa, have you guys considered investing in direct-to-patient education or awareness campaigns to help drive inbound demand and support physician prescribing?
Thanks for the question, George. I think I'll toss this one over to Brian.
Hey, George, thanks for the question. Within the regulations, we do appropriate patient education, particularly through the physician, as is through the regulations in Canada. We also, once patients are aware of Vascepa, prescribe Vascepa, where we really ramp our efforts in engagement through the patient journey, making sure there's support for reimbursement and financial assistance for retention. Importantly, continuing education through outbound calls from nurses in our Vascepa assistance program encourages patients to stay on therapy and reminds them of their treatment goals.
Yeah, I was just to add, you know, certainly Brian and I both come from the U.S. where it's a less restrictive environment in terms of direct-to-consumer. As Brian mentioned, the only area that has been a focus for us over the past year or so, and that Brian has spearheaded a lot of innovation, is around patient retention. We're finding as hard as we work to acquire new patients, we were seeing that it was a bit of a leaky bucket, especially on the private pay side, which is the more profitable, far more profitable book of business for us. A number of initiatives that Brian put in, including the co-pay assistance program, is really having a profound impact in terms of ensuring that as hard as we work to bring those patients into the system for Vascepa, they're not prematurely dropping off therapy.
We're starting to see those results and, you know, good ROI in that program that we intend to scale up further.
Got it, got it. Thanks, guys, that's helpful. Also on Vascepa, could you give us a sense of how unit demand has been tracking in the key provinces this quarter and going into the third quarter? I guess, relatively speaking, are you seeing any specific trends there?
Yeah, thanks for the question, George. I'll see if Brian had some insights on that.
Yeah, so thanks for the question, George. As we mentioned, we've grown units demand in the quarter, 23% versus the prior year. With some of the Salesforce transition that I referenced, a lot of that happened in Ontario, so we've seen some of the impact there, although still growth. We are very much still ramping the new access in the western provinces in Alberta, B.C. You know, and we continue to see strong growth in Quebec, where the treatment pathway is really well established. We've seen very strong growth there in Atlantic, sort of disproportionately. We expect, as we mentioned in the remarks, you know, to see growth in Ontario, you know, regain traction later in the year.
Yeah, we've definitely seen some strong pickup out west in the western provinces since we added those product listings.
Understood. Thanks, guys. Just one more question from me, maybe shifting gears a little bit on Esperion products. I believe you mentioned in the past that you'd be able to launch these without significant additional headcount or operating costs. Can you walk us through the expected pre-launch spending in the second half of this year and any incremental expenses you anticipate in the first half of 2026 during the launch period?
Sure, good question, George. The main area of spend for the remainder of this year is really what we consider to be critical path items. First and foremost is developing our economic models for the requirements for our dossier to submit that to the appropriate authorities to get pricing and reimbursement. That's mission-critical. That will be on the order of several hundred thousand dollars to do that. Beyond that, in terms of launch preparations, because that item's on the critical path, that really is the one that is required to launch in the second quarter of next year. Most of the spend associated with launch would occur in 2026. As mentioned, we're not adding headcount. We're going to leverage the sales team we have.
A lot of the spend that we currently have for things like attending medical conferences or advisory boards with key opinion leaders, things that are already budgeted, now can be really amortized across both Vascepa and these new products. In terms of incremental spend, it'll be things like preparing for the launch meeting, developing some training materials, developing a core visual aid, which is digital. Really minimal cost there. For 2026, we anticipate OpEx probably on the order of $1 million or so to support the launch.
Got it. Thanks for the color, Craig. That's it from you guys. Thank you.
Thank you.
Thanks, George.
Once again, ladies and gentlemen, a reminder to please press star one should you have any questions. At this time, Mr. Millian, we have no other questions. Please proceed.
Okay. You know, there's a number of other companies reporting results this morning, so we will end the call and thank everyone for participating and look forward to continuing to report on our progress in the coming quarters and speaking again soon. Take care, everyone.
Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good day.