© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to the Q3 2020 Financial Results Conference call for HLS Therapeutics. On this morning's call, we have Gilbert Godin, Chief Executive Officer; and Tim Hendrickson, Chief Financial Officer. [Operator Instructions]Earlier this morning, HLS issued a news release announcing its financial results for the 3- and 9-month periods ended September 30, 2020. The news release, along with the company's MD&A and financial statements will be available on HLS' website and on SEDAR. Please note that a slide accompanying today's call can be viewed via the webcast, a link of which is available in the company's Q3 results press release and at its 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 the company's annual information form, 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. Godin. Please go ahead, sir.
Thank you, operator. Good morning, everyone, and thank you for joining us. On our call today, I will start off with a look at recent operational developments and activity within our product portfolio. Tim will follow with a more detailed look at our financial results. And then we will hold a Q&A session.The third quarter results reflect the strength and the stability of Clozaril, our foundational product, which continues to perform well despite the COVID-19 pandemic. Clozaril's patient counts and sales level in Canada are up in 2020, reflecting the essential nature of this medication and the significant difference it can make in the lives of those suffering from treatment-resistant schizophrenia, or TRS, a chronic and serious condition.With a quick look at the headline numbers, Q3 revenue was $13.1 million. Adjusted EBITDA was $4.5 million in spite of onetime charges. And cash from operations was $2.4 million. On a year-over-year basis, these numbers reflect that 2020 has been a year of significant investment in Vascepa, which we expect will generate substantial rewards for the business for years to come.Operationally, in Q3, we continued to press forward and make good progress on our Vascepa launch despite the challenges prevailing in the health care system. Quarter-to-quarter, the number of patients being prescribed Vascepa increased 124% in the third quarter to 1,200, and the number of prescribing physicians jumped almost 90% to over 350. These growth numbers are also showing that we are gaining depth with prescribers as the average number of patients per practitioner is increasing.While COVID-19 does present challenges in reaching physicians, we are finding ways to make meaningful contact and are succeeding in raising awareness for the product with key opinion leaders and other prescribers. All things considered, we're very encouraged from what we see both in terms of the engagement and response from practitioners and in terms of the trends for prescribers and patient uptake.Our dedicated Vascepa team of 30-plus people continues to pursue a largely digital print and telephone outreach plan, enhanced since June with face-to-face interactions, which continue to increase throughout the third quarter. Almost 70% of those interactions are now live, which includes face-to-face, phone or televisual.We have made sustained progress with the core target of cardiologists, endocrinologists and selected general practitioners. Given the fluidity of the health care environment, we continue to explore all options available to broaden our reach and accelerate prescriber awareness, including the potential benefits of a co-detailing arrangement to extend our reach to a broader base of general practitioners.The important thing to remember is that as our cumulative efforts reach and then exceed minimum frequencies of interactions with the key prescribers, we have growing evidence that the product's benefit results in usage that is consistent with a life-saving cardiovascular breakthrough product.Cardiovascular disease remains the #1 killer worldwide. Statins alone are not enough. Vascepa is the first and only Health Canada approved drug that has been proven to significantly reduce the risk of death or major cardiac event in its indication. As the only drug in its class, it has the potential to improve the lives of hundreds of thousands of Canadians.At this point, I would like to turn your attention to the slide that is viewable on the webcast. If you miss the opening preamble, the webcast link can be found in our press release issued this morning and on our website in the Events section. We get asked frequently, how is the Vascepa launch going? So we decided to provide a few elements to help people appreciate what has been accomplished so far.So looking now at the slide titled Vascepa Recent Analogues: two-year comparison, this slide shows Vascepa script performance to date and compares it to the post-launch script performance of 2 other cardiovascular drugs, Eliquis and Pradaxa, which were launched in Canada in 2012 and 2010, respectively.Bear with me, as no analogues are perfect, but these 2 drugs are oral anticoagulants, and the oral anticoagulant market is a relevant analogue for Vascepa. And we include their historical experience here for illustrative purposes only. They have a similar aim in terms of cardiovascular risk focus, a similar market size potential and an overlap of health care practitioners.The purpose of this slide is twofold. First, as we look at the first 3 quarters, it illustrates that product launches, even large products, are slow in the initial phases as companies engage with the few but the very influential specialists and key opinion leaders. We are pleased to report that Vascepa has posted impressive numbers during that time, especially when you consider that having launched in mid-February, Q1 was effectively a 6-week quarter.And secondly, since then, we were under the effect of the pandemic. Secondly, we have posted on the far right side of the slide where those 2 analogues have ended at peak after their launches, sometimes 4, 5 or 6 years later, in terms of patient count. We have done so to put those numbers into perspective with our anticipated peak year potential of 130,000 to 150,000 patients, which is the base for our CAD 275 million to CAD 325 million in peak year sales target.The Y-axis shows the number of prescriptions written in that quarter. The table at the bottom of the slide shows actual script data for HLS for each of the 3 quarters this year, and then a range of script levels for Q4 this year and for each quarter next year. It's what we call internally the hurricane cone.For Eliquis and Pradaxa, the table shows actual script data for each of the first 8 quarters post their launch. So what does this slide tell us? Well, several things. First of all, as I said before, it suggests that we are off to a very good start with Vascepa. It also suggests that in the case that -- as is the case with Pradaxa, a relatively slow start can still result in a very robust patient penetration number at peak year, that the curve that is relatively flat in the beginning can really ramp-up after several years.Like the case for hurricane tracking science, the course that COVID-19 takes in the coming months and quarters could impact these numbers as well as other factors such as gaining additional payer coverage. But as is our fashion, we will work to mitigate, to neutralize or to capitalize on those external factors. Most importantly, it doesn't change the fact that the need for Vascepa is immense, the solution is unique and, therefore, the Vascepa potential remains unchanged.In August, on our second quarter call, we increased and narrowed our peak year sales estimate to $275 million to $325 million from the previous $200 million to $300 million. Despite everything that is going on, we're confident in our ability to achieve this target as we progress through our launch. Let's also not forget that we achieved several important milestones in the quarter on top of others achieved earlier this year.Collectively, these derisking factors include 8 years of data exclusivity, which was granted to us in January of this year; a portfolio of up to 15 patents, which could extend market protection well into the 2030s; CADTH's recommendation issued in the third quarter to reimburse Vascepa for patients with established cardiovascular disease; PMPRB's positive notification on introductory pricing for Vascepa also issued in Q3; continued scientific progress with the publication of the EVAPORATE trial that showed that Vascepa caused plaque regression in the arteries of those patients taking Vascepa on top of a statin versus those patients that were only taking a statin. And as of today, almost 50% of all privately covered lives now have coverage for Vascepa, which includes just under 50% in Ontario and just over 60% in Québec, Canada's 2 largest provincial market.These developments and, in particular, those with CADTH and PMPRB signaled the passing of a critical stage of our journey. One that is conducive to opening up the market to allow us to fully execute on our launch strategy. With the prospect of updated cardiovascular guidelines in the near future, we are hopeful that Vascepa will gain the same degree of medical and scientific recognition in Canada that has been granted by leading medical societies in the United States and in Europe.I would like to switch gears now to speak to Clozaril and CSAN Pronto. As with the second quarter, the third quarter provided further evidence that Clozaril is a steady and reliable foundational product, as sales and patients numbers were up in Canada. We actually achieved patient growth for now 3 consecutive months in the third quarters, following the lockdown in the second quarter. New treatment initiation should continue to pick up as mental health centers continue to resume their activity progressively.Clozaril is the last line of defense and the only proven drug therapy for patients with TRS. Dropping treatment will inevitably result in a relapse. And as such, our Clozaril Support and Assistance Network continues to work at ensuring patients comply with mandatory safety testing and stay on treatment. We remain at the early rollout stage for CSAN Pronto, our point-of-care safety blood monitoring device. But as with Vascepa, the response from practitioners is enthusiastic and points to a promising future for the product. We deployed in 12 locations, across 8 institutions in the third quarter. And we are pleased to be making headway on the rollout, though, as you expect, it is moving at a more modest pace due to COVID-19.We added to our foundational base of products in the third quarter with the acquisition of a long duration portfolio consisting of 4 diverse royalty products that are or will be marketed globally by health care leaders; Takeda, Boston Scientific, Pfizer and Sanofi Genzyme. The portfolio is expected to generate adjusted EBITDA of approximately $11 million per year on average for the next 10 years and an annual IRR in excess of 20% during that period.This transaction is consistent with our strategy to generate stable and durable cash -- revenue and cash flow from foundational assets to support our growth and acquisitive growth opportunities. It also helps to replace the revenue and adjusted EBITDA for recurrent royalty product, Absorica, as our agreement is expected to wind up at the end of 2020.We also have 3 products in the pipeline; PERSERIS, Trinomia and MyCare Insite. Saladax has filed MyCare Insite with Health Canada, and it is now under review. As a diagnostic, its review period is shorter. So if approved, we believe we could have the opportunity to launch in the first half of 2021. The other 2 products remain in the review period. These 3 products would provide complementarity and additional scale to our 2 therapeutic areas, cardiovascular and CNS, and bring novel treatment options to practitioners in those fields. As always, the strength of our balance sheet and our access to capital through our credit facility will continue to enable our business development activities to drive further growth.Finally, today, we announced the implementation of a normal course issuer bid for purposes of acquiring our shares on the open market. From time to time, the value of our share in the public market may provide the opportunity to acquire stock at prices that we believe do not reflect the true underlying value of the business. We've put in place the NCIB to enable us to take advantage of these opportunities.With that, I will turn it over to Tim for a closer look on our third quarter financials. Tim?
Thank you, Gilbert, and good morning, everyone. Starting with revenue and product sales. Our product sales in Canada were up 7.8% in Q3, driven by the introduction of Vascepa earlier this year and continued growth in Clozaril. At this early stage of the launch, Vascepa sales are not yet material. However, as Gilbert said earlier, we are encouraged by the favorable physician engagement and script trends, along with consistent and growing replenishment orders that we are seeing.Clozaril net sales in Canada for Q3 of this year were up 2.3% in Canadian dollars from the same period in the prior year and up 5.8% in Canadian dollars for the year-to-date period versus the same period last year. Actual growth rates as reported in U.S. dollars were lower due to the weakening of the Canadian dollar versus the U.S. dollar during the quarter and year-to-date periods. We are pleased with this performance when considering that in the year-to-date period, 6 of those 9 months have been during the pandemic.Clozaril product sales in the U.S. market declined $0.3 million or 6.3% in Q3 of this year compared to Q3 last year, and were down a similar percentage year-to-date. However, Clozaril volumes and gross sales are relatively flat on a year-over-year basis for both the third quarter and the year-to-date period, up 1.1% and down 0.8%, respectively. The decline in reported product sales compared to the prior year period reflects more favorable gross to net adjustments in the 2019 periods.Absorica royalty revenue this quarter was $1.8 million, consistent with the royalties in Q2 2020, but down 24% from Q3 of last year. Overall, this transaction has served us well. And looking forward, we still expect our economic benefit from Absorica to terminate at the end of 2020, as planned.As Gilbert mentioned, on September 30, 2020, we acquired a diversified portfolio of royalty interests on the global sales of 4 different products. While the acquired interests include entitlement to the royalties for the third quarter, estimated at $2 million, these royalties have not been included in HLS revenues for the quarter and instead are recorded as acquired receivables as of September 30, the day when the acquisition closed.We look forward to collecting these first royalties in the next 4 weeks or so. Going forward, royalties for future quarters will be reflected as revenues and included in adjusted EBITDA in their respective quarters. We believe the transaction has great potential to drive steady and reliable cash flows for the business. We expect the portfolio will generate adjusted EBITDA averaging just under $11 million annually over the next 10 years, which suggests an implied acquisition multiple of 5.5x adjusted EBITDA, including payment of all of the regulatory and commercial contingent milestones in due course.Regarding terms of the transaction. We paid $30.8 million upfront and incurred $900,000 of transaction costs. We also have contingent commitments of up to $10 million in regulatory and $18.5 million in commercial milestones over the life of these assets. At this point, both the timing and achievability of these milestone payments is not known.To pay for the transaction, we used $20 million of additional term borrowing under our credit agreement and cash on hand to fund the $10.8 million balance of the upfront purchase price as well as the transaction costs. In addition, we secured a $10 million increase to our revolver facility to backstop the contingent regulatory milestone payment that could be payable within the next 2 years. All in all, we believe this is a very timely and financially beneficial transaction for the business.Shifting now to our expenses in the quarter. The cost of product sales increased in Q3 2020 as a result of additional costs related to expanding the Clozaril product lineup and the introduction of Vascepa in Canada, including sales royalties. Within other operating expenses, the largest increases year-over-year for selling and marketing and medical and regulatory and patient support are related to the investment in the launch of Vascepa, including the addition of 30 customer-facing roles earlier this year.G&A in Q3 2020 was higher due primarily to a onetime $1.3 million charge related to the retirement of our founding CEO. As expected, adjusted EBITDA for Q3 and the year-to-date period is lower and primarily reflects the investment in the Vascepa launch, lower royalty revenue from Absorica, the onetime CEO retirement costs and lower product sales for Clozaril in the U.S., offset in part by Clozaril growth in Canada and the initial sales of Vascepa.Adjusted EBITDA of $4.5 million in Q3 does not include the entitlement to the Q3 royalties from the new royalty portfolio. Had those royalties been included as revenues in this past quarter, pro forma adjusted EBITDA in Q3 would have been $6.5 million.Cash generated from operations was $2.4 million in Q3 2020 compared to cash generated from operations of $6.8 million in Q3 last year. The changes year-over-year for the quarter and the year-to-date periods primarily reflect the investment in the Vascepa launch, including the purchase of inventory. As at September 30, 2020, the company had cash and cash equivalents of $20.9 million compared to $47.1 million at December 31, 2019.Factors impacting the change in cash balance since the end of last year include a $3.75 million milestone payment made to Amarin when Vascepa received data protection in Canada, increased selling and marketing costs related to Vascepa's launch, initial inventory purchases to support the Vascepa launch and the purchase of the royalty portfolio announced on September 30 this year.Overall, we continue to have a very strong financial position with $20.9 million of cash, a $35 million revolving facility that remains undrawn as of today. And under the terms of our existing credit agreement, we are also able to request incremental loans up to a maximum amount of $70 million to support acquisitions and other growth opportunities.In addition, earlier this year, we filed a preliminary short-form base shelf prospectus to raise up to CAD 250 million over a period of 25 months should the appropriate strategic opportunities emerge.Regarding the normal course issuer bid announced today, purchases can be begin on November 9, and we are permitted to acquire up to 5% of our issued and outstanding common shares over the ensuing 12-month period. This equates to just under 1.6 million shares.And finally, the next quarterly dividend will be paid on December 15 to shareholders of record on October 30. And yesterday, the Board of Directors declared that the subsequent quarterly dividend of CAD 0.05 per outstanding common share is to be paid on March 15, 2021, to shareholders of record as of January 29, 2021.With that, I'll pass it back to Gilbert for his closing comments.
Thank you, Tim. And in the closing, this is a very exciting time for our business. We can't control external events such as a pandemic, but we have gained confidence in our ability to deal with it and stay relevant to our patients and their physicians.I believe we have built a strong foundation at HLS with respect to our people, therapeutic areas, technologies, North American reach. By any measure, we're all well positioned to convert on the opportunity ahead of us.Our top priority right now and into the near future are the continuation of the successful launch of Vascepa and steady deployment of CSAN Pronto in the mental health community. To bring such novel and effective treatments and technologies to Canadian is truly an honorable experience and, of course, through a successful execution, we have the potential to deliver substantial growth in value for our shareholders.That concludes my prepared remarks. At this point, I will ask the operator to please provide instructions for asking questions. Operator?
[Operator Instructions] And your first question will be from Noel Atkinson at Clarus Securities.
Well done in Q3. Just had a few questions, largely related to Vascepa. So thank you very much for providing the sort of that outlook in terms of how Vascepa patient activity looks like and might ramp. What are you expecting within those estimates for Q4, Q1 kind of time frame, in terms of what's going to happen with COVID and related lockdowns again? And [indiscernible] Amarin was talking about headwinds in the U.S. market this morning. So what are you guys assuming in that forecast?
Actually, we painted a picture, and I referred to what I call the Hurricane cone, kind of defining here boundaries of what could happen next, recognizing that we don't control the pandemic. We don't control if the province of Québec or the City of Toronto or any other place for that matter may make decisions that trigger a second phase of lockdown.What we know for sure is that we found ways to mitigate those circumstances should they arise. We found ways to continue to make some progress, get some tractions, generate prescriptions on the patient profile that really can benefit from Vascepa. So we want to be extremely cautious. This is not guidance. This is not a forecast. This is, as I said, painting a picture of the things that could come forward that are consistent with the recent past, but being always grounded in the reality of what's happening and what we do control and what we don't control.So I think that if -- you referred to headwinds that Amarin commented on this morning. We're all in the same situation, and there's a bit of a fatigue about the pandemic and the COVID, and some people tend to forget that it's still there, the effect is still real. And to use an analogy, we're essentially rowing upstream, right? So there's current. The strength of the current varies over time. But we're moving upwards. We're moving upstream in spite of that, and that's the key message.The product thesis is hitting home. Doctors that are exposed and with whom we engage and give them the chance to fully appreciate the performance of the product, the benefit of the product and so on, it does trigger usage and that usage, soon enough, will more and more generalized to the patients fitting the profile in their population. So I think that's what we want to try to disseminate in terms of where we are at that early stage. It's undeniable that we're getting some traction. The rest, I think it's promising, but we always have to bear in mind the caveat that we don't control every facet of that environment.
Okay. It looks like you've had some good uptake in terms of getting on the formularies, particularly in Québec and Ontario. Is Vascepa on the broad formulary at any of the large national carriers in Canada?
Yes. We've commented on the percentages. We purposely have not commented on the, what I would call, the -- on a nominative basis on those plants. These are now at this stage of negotiation that we think it would be counterproductive to do so. But as you can appreciate, 50% and 60%, depending on the regions here, we've been making some serious headway.There's always a phase where these things slow down because those negotiations can be a little protracted. They do have a financial component and they are regulated by a report of force that is the need for the product, the demand for the product and the pressure that insurers may feel and the necessity of listing the product versus what maybe the impact on their drug budget.So classical case of a market access negotiation. It has different phases. Some plans will be speedy in bringing the product on their plan. Others will be more deliberate. But we will continue to report every time that we make significant progress and certainly on a quarterly basis. But it was warranted to -- if we were to get to a very significant monsoon at some point in time, between the quarters, we'd certainly announce that as well.
Okay. So it looks like -- back of the envelope, it looks like you had a few hundred thousand dollars of Vascepa recognized revenue in Q3. If the patient uptake based on what you're sort of showing here, the Hurricane cone suggests that you're going to -- you're seeing some nice ramp in Q4. Does that translate into accelerating Vascepa revenues that you can recognize in Q4? Or do you still see a fair amount of inventory at the distributor level?
Yes. I think it shows. The answer to both is yes. In the sense that we are of the view that overly focusing on net sales at this early stage is really not focusing on the right marker because as in any launch, products are often heavily -- the access to the product is often heavily subsidized, while we work on growing the reimbursement, right?So we want scripts written to be filled. We want these patients to benefit from the therapy as we work on the other part, which eventually will make up and will eliminate the need for us to subsidize. So every time we subsidize, the prescription through a very generous co-pay assistance program, we reduce net sales. And therefore, the net sales are not really meaningful in terms of uptake. That's why we communicate on patients. That's why we will increasingly communicate on scripts. This is where your eyes should go, and this extrapolation in progression -- in patient progression should in the future and at the right point in time should be valued at that guided number of about $200 per month per script, once we get to that steady state.So that's why we've always been a bit ambivalent, and we do not communicate on product level revenues. In that case, you can back calculate it, as you did. But bear in mind that, truly here, the name of the game at this stage is building prescriber recognition, support and through that awareness usage, and then to penetrate in those practices and see the patient profile be broadly identified and put on treatment.
Okay, great. Just the last question. Do you have any year-end price changes planned for Clozaril or announced for Clozaril in the U.S. or Canada?
As you know, Canada is kind of a price control country. We would typically not talk about price, but I would say, very unlikely. We have a compliant price point. We're in the very early stages of our launch. I don't think we'll do anything to rock the boat or create any kind of controversy on that point. I don't think it's warranted. We want the product to be affordable. We're negotiating with payer on the base of this introductory price. So very unlikely.
Next question will be from David Martin at Bloom Burton.
First question, with HLS achieving 50% of lives covered by private drug plants and private drug plants themselves accounting for about 50% of all lives covered, are you seeing about 25% of the scripts written for Vascepa are being reimbursed? Or are you able to focus your efforts more on patients who have coverage?
David, thank you for your question. What we monitor, because we don't always have that granular detail that you're alluding to here, is how that co-pay assistance is evolving over time. In other words, when you launch a product, if you're willing to help with every script written, you should see very little reimbursement and, therefore, a high level of assistance. And then as they start to upper and as those scripts are adjudicated and there's more and more coverage, then the average support goes down. So that's what we're monitoring.Maybe Tim can comment on what he's been seeing. I mean not the numbers specifically, but the evolution since the launch. Tim, do you want to share a view to that?
Yes. Again, for -- to see trends like this, this is still very, very early days, and the numbers are still relatively small. But we are seeing an increase in the percentage that is being reimbursed. And proportionally, there is a very -- there's a larger amount of private coverage within the total that we're seeing.
So are you able to direct your efforts to those patients who have coverage? Or is that not part of your strategy?
No. The -- actually what we are doing and what is, I guess, reasonable? We can't expect doctors to act as a triage beyond the clear message that we're giving to them that they should consider, at least at this stage here, any patient that is under a private plan, right? So that's essentially the one consideration.If a patient is under a private plan and they write a prescription, we commit and we provide beforehand the information that will allow this patient to access the product at a no more than X dollar cost, which means that we will essentially foot the bill for the difference and assist with their co-pay. We do so in proper and compliant fashion. What happens beyond that point is actually out of our hands because scripts -- patients go to pharmacy with their scripts, the script is adjudicated and there's a number that comes out of that, and part of that number is for the patient as his co-pay and part of that number is for us as a support effort. We don't know [indiscernible] which plan and in which fashion is this coming from?
Okay. Next question. The 350-or-so prescribers, what percent of your total target prescriber population does that represent?
Of the total prescriber population, the potential prescriber population is extremely large, but we'd be talking between 10,000 and 20,000. But that number needs to be viewed in terms of our initial targeted physician population, which is closer to 2,000 to 2,500.
Okay. And a similar question for the CSAN Pronto. You mentioned it's in 8 centers or 12 centers. What percent of the total centers that you'd like to see it in, does that represent?
This is truly a fraction here. I would say, in the low double digit. Providing a more precise answer is very hard because we originally were in discussion with the 9 largest institutions in the country, and that discussion remains. Is that some of those sectors decided to defer an implementation at the time where they were too busy dealing with the pandemic and the aftermath of the pandemic.So we have deployed in centers that either came back to us and just say, the time is right for us and we want to do it or we're receptive. That goes down to 12 locations out of -- under the jurisdiction of 8 entities. Some of them are large, and they are multipronged and they have satellite centers. So that's a reflection of that. And that number, while lower than where we would be in normal circumstances as per our plan, that number should continue to grow. We could almost double that count before the end of the year.
Okay. Tim, should we expect your operating expenses to be fairly stable going forward? Or is there going to be a step-up in the sales force expense as Trinomia and PERSERIS get approved?
So in the near term, I would expect that the expenses would be quite stable. I think we did talk about expanding our coverage for Vascepa into a general practitioner or primary care market. I think when that expansion happens, you'd see a step-up in operating expenses associated with that.I think when it comes to PERSERIS or Trinomia, there's a very nice -- they're a very nice complement to the existing operations. So there would be some addition, but I don't think it would be as significant as, for instance, when we expanded to launch Vascepa.
And the expansion into primary care, when will that happen? And I think you said you might use a third-party for that?
Yes. Well, here's our thinking. We can't be static in our thinking when the environment is so fluid and challenging. And we're allowing ourselves to think in terms of possible alternatives, right? The base case is that we would deploy 50 to 55 GP-oriented sales representatives and that this would take place when the public reimbursement are taking effect. So this typically, 18, 24-month post-launch or earlier if we gain public market access earlier.The alternative that we're allowing ourselves to reintegrate [indiscernible] possibilities would be to see if in the context of this pandemic, does it make more sense to look at an existing market participant that is already calling on a similar audience that may have cardiovascular credentials and to essentially have one of their detailing positions be allocated to Vascepa, or should we take the chance and the risk of trying to structure a sales force, interview people, train them, deploying them, when in fact there are a lot of impediments for an activity that is otherwise fairly straightforward.So we're looking at the effect, the pros, the cons, the benefit, could this accelerate our plans rather than stick to the original. There are all the things that we're allowing ourselves to look into. And the reason we specified it is that we previously had mentioned that we had boiled it down to a known sales force. We're now in the context of pandemic. We're seeing the merits that could be related to a co-detailing partnership of sort. I'm not saying co-promotion, I'm saying co-detailing.
And would it be a pharma company or a contract sales organization?
It could be one or the other. I think we want a very qualitative partner. So we will make those evaluations so that we do get a qualitative partner. Vascepa is a sophisticated story, one that needs to be well presented, well understood. So that's the key parameter. We'll see who -- how we qualify the various possible partners. And as I said before, we also keep the initial assumption alive as a base case.
Next question will be from Justin Keywood at Stifel GMP.
I just had some questions around the EBITDA. So within the quarter, the adjusted EBITDA, did that add back the $1.3 million U.S. retirement charge?
Justin, thanks for the question. And no, that does not. So that's included in there.
So if I were to do my own adjusted EBITDA, and this is pretty rough math, with the $4.5 million plus the $1.3 million, so the quarter could have been around $5.8 million given it was a onetime charge?
Yes. Excluding the onetime, that's where the quarter would have been, yes.
Sorry to interfere, but that also excludes the royalty interest which is, Tim, to the level of $2 million. So technically, if you want to really bracket the whole thing, it could be also as high as $7.8 million.
Right. And that's actually my next question of clarification, and just to understand that pro forma EBITDA number, would that include any of the Absorica remaining royalty? Or is that additional $2 million, is that kind of like a net new royalty number going forward?
The $2 million is tied to the recently acquired royalty interest. The Absorica royalty is already included in the adjusted EBITDA.
Okay. And just so I understand that, royalty from Absorica, I think we're anticipating a very small amount for Q4 and then the economics of that asset, you shouldn't expect anything going into 2021?
I think both of those assumptions are very reasonable given where it's at with expected loss of exclusivity in Q4. I think assuming less and then done at the end of the year would make sense.
Okay. That's helpful. And then just on the cash flow, the conversion of EBITDA was a little lower than at least what we were expecting. And I think some of this has to do with the $1.3 million retirement charge. But there was also a mention of an inventory build for Vascepa. I -- how I understand is that the inventory was already purchased in the front half of the year? Or was there continued purchases in the quarter?
No continued purchases in the quarter. You're right. That was done in the front half of the year. There -- from a cash flow standpoint, the last piece of that was actually paid in Q3 -- delivered in Q2 and paid in Q3.
Okay. Understood. And will there be any other anticipated inventory purchases in the near term? Because I think I understand there's a pretty healthy amount of inventory on -- already.
That's true. We're in very good shape. I would think it'd be a little while.
Okay. And then my last question is just the timing around the Health Canada potential approval for Trinomia and PERSERIS. I'm not sure, is that expected in Q4 or Q1 of next year? Hello?
I was expecting Gilbert to answer that. I think he's having some technical difficulties. So the Health Canada action date, if you will, for PERSERIS is actually coming up. So I would expect you would hear something this quarter.
Okay. And Trinomia?
That's just a little bit behind that, likely also this quarter.
And your next question will be from Chelsea Stellick at AI Securities (sic) [ IA Securities ].
So I know -- I just have 1 question. I know that you mentioned that some health -- mental health facilities are opening up again, especially after some closures, which has lend itself to the continued strong performance of Clozaril and new treatment initiations.I don't know if you can, but could you give us like an outlook on whether or not you see these facilities in Canada and the U.S. continue to remain open as the second wave is along us? Or how you foresee that will impact your fourth quarter?
Sorry, Tim, I just want to notify you that I'm back on the call. Unfortunate transmission problem.
Great. That was fast. Did you catch Chelsea's question?
Unfortunately, just the last few words.
Okay. I think it was basically looking at what we would see as the continued COVID-19 impact on mental health institution's ability to entertain prescribing for new patients on Clozaril or CSAN Pronto implementations.I think what we're finding is that the market and the health care system is beginning to normalize and find ways to get back to treating other patients even while the pandemic continues. And so that seems to be the emerging new normal. We obviously don't control or know how things will play out, and so things could change. And likely change in different regions in different cities and localities at different times. But I think the emerging pattern is that institutions and the health care system is finding a way to treat everyone as needed.
Correct. I think -- if I may just add briefly there. There's been a number of industry observers, [indiscernible] of the world that have been commenting on what's been happening in those chronic disease states, where are those patients going, if they're parked or not and so on. So the short of it is that there was -- I guess, there is a notion of an inventory of patients that got built somewhere and is now being addressed progressively. So there was a kind of a standstill period. And with, I guess, health care organizations learning to cope with the virus, we're coming back slowly towards normality and now we're seeing a number of those patients being initiated on treatment whereas before, it was more a status quo.
Okay. And so in terms of, like, what you would see pre-pandemic new treatment initiations versus during pandemic new treatment initiations, and then now pent-up demand new treatment initiations, what does that all look like in terms of numbers, I guess?
I guess the one data point I could give you. It's imperfect, but we're now getting to patient initiation numbers are neighboring the few months preceding the pandemic. So we're not in a catch-up mode because it would be above that level. But at least we're getting to a similar rhythm, which is -- we essentially plummeted to 0 new patients over most of the spring and the beginning of the summer. So now there's been the progressive resumption, and we're getting closer to pre-pandemic levels.
[Operator Instructions] And your next question is from David Martin at Bloom Burton.
A couple of other questions, if I can. If Trinomia and PERSERIS are approved this quarter, will you launch them right away?
I think you have to view these products, including Saladax, as products that could be introduced during the first half. We're in an environment here where we have to just here to talk again about the pandemic, be mindful that this is not normal operating conditions. And to get ahead of ourselves before we have all the facts and can launch in an efficient fashion, can only drive costs up prematurely. And therefore, that's, in our view, one of the definitions of a risk.So if we were to receive a favorable notification from Health Canada on Saladax, for example, well, we will -- in orderly fashion, we will plan a launch that should take place in the first half of the year. But we have to be mindful that we have to make sure we have proper product supply and that the apparatus, the commercial apparatus can be prepared, trained and that all the tools can be ready for that. So everything is being done at a somewhat lower pace and with less fixability. And therefore, basic prudence is the modus operandi.
Okay. Next question. The RSAP program in the states. You've talked about CSAN Pronto and things are getting going on that. What about the status in the states of the equivalent program?
Okay. Well, the RSAP program is actually still in effect. We moved post pilot in -- towards the middle of last year, and we're now trying to expand it. The impact on the RSAP program has actually been greater than the impact on the CSAN Pronto deployment. One of the reasons is that our plant was essentially rooted in California, which is a very large state, but a state that was also very heavily impacted by the pandemic. And therefore, we've seen there are some of the gains that we had made that were very encouraging, being reduced somewhat, attenuated, and in some cases reverse.So at that scale, it's not highly significative, but it's nonetheless a bit disappointing. We think here, again, once the conditions are established and once we can branch out of the state of California for those subsequent deployments, we'll see the benefit we saw in the pilot phase resume and continue to help us mitigate the normal erosion of that product in the U.S.
And are you seeing that start to happen? Or are things still fully locked down there?
At this point, we're not seeing that happening in any meaningful way. I mean as you can appreciate in the U.S., the spike has been much greater and has been impacting disproportionately, probably 48 of the 51 states.
Okay. My last question is just a clarification. When I asked about whether you're able to target specific patients, you said no. But I think you also said that if they have private insurance coverage, even if the reimbursement isn't in place yet, you'll give them patient assistance. Does that mean you are focusing your efforts away from the patients that are covered with public drug plans?
That would be a fair conclusion. We're not ignoring them. We're just telling doctors that public plans are slower to move. And if they can impress upon their provincial authorities that Vascepa is a needed medication in the provincial formulary, that will help a lot. But that, in the meanwhile, they focus more in the initial phases on patients that have access to private coverage.
And your next question will be from Tania Gonsalves at Canaccord Genuity.
Just a couple more from me here. So you talked a little bit about the co-pay assistance you provide in the drug's early days. Could you give us an idea of just how big that gross to net discount could be in the first few months?
Sorry, you meant the co-pay assistance?
Yes. So like how much of a discount can you provide? Does it cover up to 90% of a drug's cost? I'm just wondering what that differential is in the early days.
I think the rule relates to a -- I think you can picture a pay no more than X dollars. That's pretty much the base of the equation. For the rest, it depends on every insurance plan. In other words, some of them at the early stage may already cover up to that level and, therefore, there's no need for assistance. In some other cases, if the insurance company has not rendered a verdict on the reimbursement, then we would essentially take care of the rest of it.Tim, do you want or do you have anything else in addition that you want to share here to give a sense of boundaries of what we could be supporting?
Sure. Thanks, Gilbert. And thanks, Tania. I think Gilbert -- the way Gilbert captured it is right. Basically, the idea wouldn't be to pick up all of the costs. What we're doing is we're bringing the cost down to what would be kind of a more manageable co-pay amount for the patient. And so that would depend on a number of other factors. But it is obviously healthier than what we would expect it would be going forward.
Yes. And I think these -- we don't want to do any -- anything would be good [indiscernible] here, right? The information is in the public domain. We're providing physicians with the information that will help the patient get access to that support. And I think, and correct me if I'm wrong, Tim, it's pay no more than, what is the amount?
I believe it's somewhere around $40 a month, something like that.
So as you can imagine, in the worst case, we could be essentially covering the difference. But what really matters to us here in the end is kind of the blend of all those demands, some of which are fully covered, some of which are partially covered, some of which are not covered at all. But these are the 3 elements in the equation. I think, anything more specific would be hard to present. We're looking at it in an aggregate fashion.
No, that's perfect. That was really, really good color. And thank you, again, for the chart that you showed us in the slide deck. I think that was really helpful. I think you previously estimated that the pandemic has pushed the sales curve out about 2.5 to 3 months. Is this still the case looking at the script volumes?
I think that the -- this notion of shifting the curve was because we've gotten a bit of a holding pattern, right? And I think we've alluded use terms such as retooling, finding new approaches, adapting the tools to the new reality. And in that period of time, we had very little interactions or productive interactions with doctors. So that was essentially the passage of time with us not stimulating or acting on the market.We evaluated, yes, approximately 2.5 months -- 2 to 2.5 months of an idling of sort. Since then, I think, as some of those numbers could attest to, we've renewed with the doctors, we're getting some traction, we're seeing the results happen here. And it's more in terms of what is the buffering effect of the pandemic because as happy as we are with the types of actions and the mitigation strategy -- the effect of the mitigation strategy, it is still not equivalent to what we would do otherwise in the normal environment with 30 client-facing personnel interacting face-to-face X times per day every day of every week, right? So the question would be, where was the buffering effect? I don't know. It is there. It's very real. We would be posting better, stronger numbers, but we're quite pleased with the performance and our ability to mitigate a lot of the slowdown that's being induced by harsher conditions in the field.
Excellent. And switching gears here, do you have any update on the search for a new COO?
The search is -- yes, we're smack in the middle of it. We're -- it's following its course, and we're hopeful that comes the -- beginning of next year that this could come to a conclusion. But progressing normally.
Okay. And one more for me here. The sales and marketing expense, looks to have downpicked from levels in Q1 and Q2. Could you maybe talk to why that is? I would have expected, it just continues to ramp or at least stay steady with your number of salespeople staying steady. And maybe just provide us an update. I know you have over 30 people committed to Vascepa. Could you give me an exact number?
Sure. I'll answer the second question, and Tim can comment on the first. So we have constituted 23 sales territories across the country. We have, I think, 6 medical and scientific liaisons. We also have key account managers and, of course, the supervision on the field of the personnel. So that's kind of the rough equation here. We say 30, it could be a bit more, but I think it gives a good sense of what the footprint is.Tim, do you want to comment on the front end?
Certainly. I think, in general, we should see relatively stable expenses in that area now. Even in the COVID-19 era, summer is slower. And so Q3, we had a little less activity in it. And of course, the earlier quarters this year also had a lot of the additional costs for getting the -- actually launching the product, getting all of the tools and training in place.And then as we went into Q2, we had a little bit of retooling to do to move to a more virtual or electronic environment, and then some lighter activity months during the summer. But I think you can probably normalize for all of that and see a pretty steady amount going forward.
And at this time, we have no further questions registered. So I would like to turn the call back over to Mr. Godin.
Thank you, operator, and thank you for being with us. Thank you all for participating in today's call. We hope that you and your loved ones stay healthy and safe, and we look forward to speaking with you and reporting to you in the coming quarters. Thank you. Have a wonderful day.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.