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Good morning, and welcome to the Fiscal 2017 Financial Results Conference Call for HLS Therapeutics. On this morning's call, we have Greg Gubitz, Chief Executive Officer; Gilbert Godin, President and Chief Operating Officer; and Tim Hendrickson, Vice President, Financial and Administration. [Operator Instructions] Earlier this morning, HLS issued a news release announcing its financial results for the year ended December 31, 2017. This news release along with the company's MD&A and financial statements will be available on HLS's website and on SEDAR. 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 on Page 1 of the joint information circular filed on SEDAR on February 5, 2018. 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. Gubitz. Please go ahead, sir.
Good morning, everyone, and thank you for joining us today on our inaugural quarterly conference call. With our recent listing on the TSX Venture Exchange, this is an exciting time for HLS. We are proud of what our team has accomplished in such a short period of time and are focused on executing the next steps to grow HLS to its full potential. I will comment today on 2017 highlights and our long-term growth strategy. Gilbert will review developments with our product portfolio, and Tim will take a more detailed look at our key financial metrics. Following Tim, I'll provide some closing remarks and then we'll hold a Q&A session. Simply put, 2017 was an outstanding year, both operationally and financially. Revenue was $75.1 million, up 39% year-over-year, adjusted EBITDA was $55.9 million, up 45% year-over-year and cash generated from operations was $27.2 million, up 25% year-over-year. We paid down $13.1 million of debt in 2017 and in Q1 of 2018, we have paid down a further $7.1 million. This brings our total debt pay down since inception to $40.8 million. And finally, with the completion of our reverse takeover earlier in March, we have added $25 million Canadian of capital to our balance sheet. Our strong cash flow, strong balance sheet and new public listing mean we are extremely well positioned to capitalize on a rich pipeline of business development opportunities to grow HLS into Canada's leading specialty pharmaceutical company. For example, in 2017, we took important steps for future growth by utilizing the Canadian rights the 2 pre-registration stage cardiovascular products, Vascepa and Trinomia. We believe these products are important for patients and have transformative potential for HLS. They target lipid disorders and cardiovascular indications, a leading cause of death in Canada. It will establish HLS's second key specialty area after CNS, namely cardiovascular. Both products are currently strong performers outside of Canada. Vascepa is commercialized in the U.S., and Trinomia in over 30 countries. Vascepa in particular has the potential to be a very significant product, depending on the results from the REDUCE-IT clinical trial, which are expected to be announced later this year. Gilbert will provide further details.While HLS might be a new name to some, this is not our first rhodium. HLS has an experienced team of specialty pharma executives that have worked together for many years. This team led the turnaround of Biovail, where we developed and launched the new strategy, deployed over $1 billion of capital in multiple transactions and created significant shareholder value, all in just about 30 months. Following that success, we decided to create our own platform for the specialty pharma market using the same prudent strategy we previously deployed. We gained the backing of some of the most well-respected investors in the healthcare space and in just over 2.5 years, we have raised more than $400 million in equity and debt capital to launch and perceive our strategy. That total includes a significant equity investment by the leadership team. Our strategy in HLS is to become Canada's leading specialty pharmaceutical company in 3 successive steps. Step one is to acquire in-market established products, generating significant and stable cash flow, such as Clozaril and Absorica. Step two is to acquire or license promotable products to create organic growth, particularly those with the proven track record in other markets, such as Vascepa and Trinomia. Step three is to acquire or license late stage development assets in our targeted therapeutic areas, where we see potential for explosive growth. Choosing the right deal is essential, regardless of which leg of the strategy it fits into. As a result, our process for sourcing and vetting transactions are key. Although we do look at assets that are part of formal auction processes, that is not our emphasis. We spend most of our time proactively seeking out opportunities. Of the 4 deals that we have done in HLS, none of them were as a result of a formal auction process. By proactively sourcing opportunities, we believe we can help drive better overall deal metrics. On assessing potential transactions, there are certain criteria that we believe are key. With our portfolio today, we are primarily focused on 2 therapeutic areas: Central nervous system or CNS and cardiovascular or CV indications. We see a rich pipeline in those 2 areas and importantly, acquiring assets in these areas gives us the opportunity to leverage the infrastructure that we have built and to generate synergies. We have invested over the past 2 years building this platform, which we believe to now be grown in both Canada and the U.S. We have been very focused on executing on that plan. In just over 2 years, we have completed 4 transactions, deployed more than $300 million in capital, built a scalable platform in 2 therapeutic areas, supported thousands of patients and grown to 45 employees. All the while increasing revenue, adjusted EBITDA and cash flow and reducing our debt. This is just the beginning, and we believe that our greatest opportunities lie ahead for us. It is difficult to predict the exact timing of business development transactions but we are hard at work on several exciting opportunities. Our track record on deal execution speaks for itself. With that, I'll pass it over to Gilbert to take a closer look at our product portfolio.
Thank you, Greg. Bonjour, [Foreign Language]. And good morning, everyone. I'm going to spend a few minutes on our product portfolio to touch on key characteristics, recent developments and upcoming milestones. As Greg has stated, we believe we have a great mix of strong foundational and promising transformational products. Clozaril and Absorica are 2 foundational assets that are in the market today, providing us with stable cash flows to support and grow the business. On the transformational side, we have Vascepa and Trinomia. These are our growth products, which points to the essence of our strategy, generating organic growth from in-licensed or acquired products. The first product acquisition we made was Clozaril, which is in -- atypical antipsychotic indicated in the management of symptoms of treatment resistance Schizophrenia. It is a great foundational product, because it is in a critical and fragile disease state where the needs are immense, and the impact can be life-changing. It is a material product for us, and one that we believe has staying power and serves as a beachhead for a CNS franchise. In Canada, this franchise is supported by the Clozaril support and the assistant -- assistance network known in the medical circles as CSAN or [Foreign Language] in French. CSAN is a significant competitive advantage for us. It is a portal where patients are registered and that offers assistance and services to all caregivers involved in the complex treatment and management of refractory schizophrenic patients. Our patient registry is required by Health Canada due to the nature of the drug and the mandatory monitoring of the patient from a safety standpoint. We acquired an excellent well-regarded portal from NOVARTIS and have chosen to invest in it further. We believe this is not only the right thing to do for the caregivers and the patient, but this is also having a positive impact on our business, as we are growing sales and market shares in Canada. Absorica is our second foundational product and is a commercial stage dermatology product useful in the treatment of severe acne. Absorica is marketed by a third party in the U.S. We acquired the U.S. marketing rights in mid-2016. And 2017 was our first full year of royalty revenue. Absorica benefited from certain market factors in 2017 that Tim will expand on, which have led to very strong financial results, exceeding the expectations of our initial investment thesis. Absorica is expected to be a reliable performer and generator of cash flows, which makes it a solid foundational product. The next 2 products fall into the category of transformative products, with great potential to deliver fresh revenues and long-term organic growth. The first is Vascepa, which is a pharmaceutical grade product consisting in highly purified EPA, better known as the good Omega-3. In the U.S., where Vascepa was approved as the new chemical entity, it is indicated to lower very high triglyceride levels. Contrary to other non-purified Omega-3 products, Vascepa does not contain DHA and therefore, does not raise the LDL levels and that's the bad cholesterol. This is a unique benefit of the pure EPA feature of Vascepa. In the third quarter of 2017, we entered into a license agreement to register, commercialize and distribute Vascepa in Canada. Vascepa was developed by Amarin and was approved in the U.S. in 2012. We're very excited with the potential of Vascepa. If approved, Vascepa will be the only Health Canada prescription product in its class and a beachhead for our cardiovascular franchise. Vascepa's experience so far in the U.S. has been very promising. Amarin has experienced 13 quarters of 35% to 50% year-over-year growth in the number of prescriptions filled, and the U.S. market revenue guidance for the product in 2018 is $240 million compared to revenues of $180 million in 2017. While Vascepa is now biotech play, this is arguably biotech-like upside for HLS with the product. Vascepa is currently the subject of a large, 8,200-person trial known as the REDUCE-IT trial. Vascepa is being studied to determine if it helps to reduce major cardiovascular event when used in combination with statins. If it is found to do so, it could increase significantly the addressable market for Vascepa up to 16x larger by our estimates. And there could be more than 8 million Canadians using statins and having high triglycerides. This is one of the largest clinical trials ever undertaken in this area, and Amarin expects to have trial results by the end of the third quarter this year. On the hears of this data, we would then expect to file with Health Canada in the fourth quarter. The fourth product in our portfolio is Trinomia, a product intended for secondary cardiovascular prevention. We analyze the Canadian rights for the product in the fourth quarter of 2017. Trinomia is approved in more than 30 countries and also falls into the cardiovascular therapeutic area. Among other things, we believe there are excellent synergies between Trinomia and Vascepa, as both will be promoted with the same sales force calling on the same prescribers. Patients that have experienced a heart attack or had a surgical bypass or heavily medicated, they will need to take on average 8 different drugs. 3 of those drugs are almost universal, an anticoagulant, a statin to reduce cholesterol and an antihypertensive. It is well documented and known to doctors that the higher the number of daily medications, the worse the patient adherence to treatment. Trinomia is a simple and smart product. Miniaturizing and combining these 3 common medications in 1 daily pill. We believe that an affordable and accessible Trinomia pill can bring simplicity and enhance compliance to a treatment that is essential to reduce the likelihood of a second cardiovascular event. We have a presubmission meeting with Health Canada in the spring of this year, the results of which will inform our go-forward strategy for Trinomia. With that, I'll pass it onto Tim to look at the financials.
Thanks, Gilbert. And good morning, everyone. As Greg mentioned up-front, 2017 was a strong year financially for HLS, with our key metrics reflecting this performance. In keeping with the discussions, say, I will spend the bulk of my time looking at the full year's results. I'll start with revenue, which we segment by type, product and royalty and by geography, Canada and the United States. Revenue increased 39% or by $21.1 million over 2016. While both product and royalty revenues increased in 2017, 95% of the increase came from royalty revenue, which is comprised of Absorica. The increase was in part due to the fact that we had a full year contribution from Absorica royalties in 2017 versus just 2 quarters in 2016. That said, comparing the 2 quarters in 2016, Q3 and Q4, in which we had Absorica royalty revenue with Q3 and Q4 of 2017, Absorica showed significant year-over-year growth of 105%. Absorica benefited from certain favorable market conditions in 2017, including a promotional campaign implemented by the marketer of Absorica in U.S., which was completed at the end of the year. Overall, we estimate that these market conditions resulted in the revenue windfall for Absorica in 2017 of approximately $10 million. Clozaril product sales were steady and up a more modest 2% in 2017, largely due to the addition of an authorized generic supplies manufactured for the U.S. market and Clozaril's growth in the Canadian market. From a geographic perspective, U.S. sourced revenue was 62% of total revenue in 2017, up from 49% in 2016. This is due to a full year of Absorica and the favorable market conditions I just described and offset, in part, by the growth of Clozaril in Canada. Operating expenses, which consist of cost of product sales, selling and marketing expense, medical regulatory and patient support expense and general and administrative expenses were $19.2 million in 2017 compared to $15.5 million in 2016. In general, Clozaril's revenue and the scope of the business grew. Of note on the cost side, cost of product sales were $4.1 million in 2017 compared to $1.9 million in 2016. The increase was due primarily to the additional product supplies manufactured under an authorized generic supply agreement for the U.S. market and the onetime cost associated with the tech transfer of manufacturing responsibilities for the U.S. market to the HLS contract manufacturing supply chain. The supply chain is expected to result in lower ongoing manufacturing costs going forward. G&A increased 13% in 2017, as we built out our team and the scalable platform Greg spoke about earlier. With the platform we have today, we believe we can support a significantly higher run rate of business without material additional cost. Looking ahead to 2018, you could expect G&A to tick up somewhat as we begin to incur public company costs. Adjusted EBITDA was about up 45% in 2017, the increase was driven primarily by our revenue growth and keeping a close eye on expenses. We arrive at adjusted EBITDA by taking operating income and adding back the noncash depreciation and amortization and stock compensation items. This is more fully described in our MD&A and our press release. We generated $27.2 million of cash from operations in 2017, up 25% from last year. Strong cash from operation reflects the performance of our foundational products and their ability to deliver reliable cash flows. We ended 2017 with $36.2 million of cash on the balance sheet, and as mentioned earlier, with the completion of our reverse takeover of Automodular Corporation, and listing on the TSX Venture Exchange we just added another CAD 25 million of growth capital. Regarding Automodular, in our press release issued today, we also announced that Automodular's financial results for 2017 have been filed under HLS's profile on SEDAR. In addition, as many of you now already know Automodular's litigation was settled prior to the reverse takeover and the settlement funds were received just prior to the closing of that transaction. As a result, the process for distribution of those funds is underway and more details will be made available by press release at the appropriate time. Strong adjusted EBITDA and cash from operations have enabled us to continue our disciplined deleveraging trend by making debt repayments. In 2017, we repaid $13.1 million in debt and in Q1 2018, we have repaid another $7.1 million. Including the Q1 repayment, the total amount of debt we have repaid so far is $40.8 million, our debt balance was $151.3 million at the end of 2017, and with the repayment in Q1 the balance now stands at $144.2 million. This is down from $185 million, which besides -- which was the size of our original debt financing. And with that, I'll pass it back to Greg for his closing comments.
Thanks, Tim. In closing, we are very pleased with what we've accomplished in a short period of time and about our future opportunities. We are executing on a disciplined, methodical plan to build a leading specialty pharma company that puts the patients first and by doing so, we believe will create growing value for our shareholders. We have an experienced team that has worked together for many years and that is pursuing a strategy, which has been proven to generate results.There are positive trends in the pharma market today that we believe we can capitalize on, to generate greater levels proprietary deal flow, a growing pipeline of new opportunities and a solid portfolio of foundational, transformative and late development stage specialty products. We have some important milestones coming up in 2018, which promise to make an exciting year for HLS and our shareholders. That concludes my prepared remarks. At this point, I would ask the operator to please provide instructions for asking a question. Operator?
[Operator Instructions] Your first question comes from David Martin from Bloom Burton.
I got a couple of questions. The first one is, you've been doing this M&A thing for quite a few years now. I'm wondering what your feeling is about the environment for M&A. Is it the same as it's always been? Is it tougher out there now? A buyers' market or sellers' market? How does it compare?
Good morning, Dave, and thanks for the question. I would say, the market that we're seeing is quite robust. Our deal flow has probably never been stronger, both in terms of potential product acquisitions and also on the M&A side. I don't know if you could categorize it as a buyers or a sellers' market, my experience is very much company-specific. But we are starting to see valuations coming down in certain situations. We're also starting to see a bit of a willingness on the part of sellers to destructure transactions, which allows us to gate our risk as we move forward.
Couple of years ago pharma was going through a rationalization of their pipelines and selling off some nonstrategic drugs. Is that still happening? Or is it more from the biotech companies that you are seeing opportunities? Is that changed?
The pipeline that we have developed, it really falls into 3 buckets. We are seeing the large and midsized pharma companies continuing to focus on their main areas, and as a result divesting what they consider to be their noncore asset. And those could either be the tail established products that are nonpromoted, as well as in a number of cases promoted organic growth assets. So I think that trend is continuing, and I'd say our deal flow is building up nicely in that area. We're also seeing a trend where midsized pharma or even biotech companies will have maturing pipelines or products that are starting to come into the market looking to expand geographically and looking for partners in other countries. And I think Vascepa and Trinomia are 2 classic examples of that. But overall, I think the deal flow is increasing, and I think that the deal flow is likely to continue to do that going forward.
You also mentioned the 3 steps in building HLS, the established products followed by the promotable products followed by the late stage products. Since the first 2 steps you've executed on those fronts, are you done in those areas now and you move on to the late stage? Or could we get more established products? I'm sure you get more promotable products as well but are you done on the established products front on that strategy?
No, it's a good question, David. I guess, I should have been clear. Those are the 3 legs of our strategy, and it's our intention to build up each of those 3 legs over time. The established products are wonderful assets if you can find them. They are a challenge to find with there's not very many assets out here that I believe have the quality that Clozaril does. But we are still looking to add-on established products, provided they meet our very strict financial and commercial thresholds. Let's hope we can find those. We would love to add those on. Our main focus at this time is really on promotable assets, where we can generate organic growth. And then we will start looking for and executing over time, investments in late stage development assets, but just to be clear, on those late stage development assets, we're not going to be vetting a pie for the piece. We'll be allocating relatively small amounts of our cash flow to those types of opportunity.
Got it. And then my last question, I may have missed it, but is there any way you can quantify the expected impact of the Clozaril AG in the U.S. this year?
Yes, may be a bit of context here. Our collaboration -- we're partner with the AG as in it's really in the spirit of trying to fully exploit the NDA we acquired in the U.S. We acquired a full and fully generic sized brand and therefore, everything we can do to help sustain that stream of revenues is something we felt we ought to look into. And therefore, this AG was launched in an extremely mature generic market. And one that is undergoing a tremendous amount of price pressure. So I would say that what we have experienced in the back end of 2017 with that launch is the attempt to introduce the product, and it's probably premature to tell how well this product can do over time, given the might of our partner that is well established, this will hopefully happen. But the -- I would say that the kind of pressure that we have to factor into this analysis is the fact that there are tremendous price pressures and they are well established players, whereas usually right generic is introduced in the early days of generalization and in this case, it's taken place 14 years after the full generalization. So we need to let it play out. We have -- I would say fairly modest expectations. We're hoping it will be successful and material at this point. It borderlines on the tactical, and that's pretty much the level to which we set our expectations, no more than that.
[Operator Instructions] And you do have a question from Justin Keywood from GMP Securities.
Just on the benefits from Absorica in 2017, the press release mentioned that the $10 million in sales that you quantified, are you able to provide any value of what the EBITDA might be for that benefit?
Yes, certainly. As we've received royalty revenues, there's not any material operating expenses against that, so it goes directly to adjusted EBITDA.
Okay, got it. And then just in the opening remarks, there's some mention on the G&A ticking up a bit as HLS becomes a public company, and then also investing in the platform for Clozaril Canada. I'm just wondering if you could quantify what these additional expenses might be going into 2018?
Well, as you know we recently completed our deal with Automodular, and we're listed on the TSX Venture Exchange. We'll see the normal amount of public company cost in terms of borrowing fees and then the like that you would normally expect to see with that. And then I would think most of our infrastructure platform is largely built out. And so a continuation of the run rate from Q4 is probably a pretty realistic view, in addition to that the increase of public company costs.
And we -- having acquired the rights to Vascepa and Trinomia. In the future -- in the near-term future as we're preparing the filings and eventually as we're prelaunching those products. There will be associated cost that are essentially part of building the business and the cardiovascular platform. So I think that's the other material component.
Got it, that's helpful. And just to follow on the M&A discussion. Is there any range in potential size of the targets that you're looking at, which you can provide?
Justin, we do as you would imagine a wide range of transactions from smaller transactions to quite large. I don't think it's appropriate for us to give you a range or an upper limit as to what we would look at. But this team has done very large transactions historically. But we also have a deal flow today that ranges from small to quite material.
Okay. Got it. And then just one last question. Just on the Clozaril growth in Canada, given that there's still investments going on in the platform. Is it fair to assume that the organic growth that happened in 2017 that's sustainable going forward for, at least, a number of years?
We believe it is. The natural growth of that mature market is anywhere between 2% to 4% every year. And we think that we can maintain our leadership position and hopefully grow it further. But we don't see anything materially changing, this continued market expansion. Albeit modest by any standards, it is still fairly consistent, it's been the case for at least the last 5 to 7 years.
At this time, I will turn the call over to the presenters.
Thanks, operator. And thank you all for participating on today's call. And we look forward to speaking with you and to reporting to you in the coming quarters. Bye.
This concludes today's conference.