HLS Therapeutics Inc
TSX:HLS
Earnings Call Analysis
Q4-2023 Analysis
HLS Therapeutics Inc
A promising outlook awaits investors as the company projects significant revenue growth for its lead product Vascepa, anticipating an increase of 55% to 70% over the previous year. This surge translates into a revenue range of CAD 27.5 million to CAD 30 million, which equates to approximately USD 20.5 million to USD 22.5 million, assuming exchange rates remain constant. Achieving this ambitious target hinges on several factors: the efficacy of revamped selling strategies, smoother access and reimbursement processes, and the dynamics between public and private payer contributions. Notably, by Q4 of the forthcoming year, Vascepa is expected to positively impact adjusted EBITDA, signaling profitable times ahead for the product and bolstering the overall financial health of the company.
Amidst the high expectations for Vascepa, Clozaril, another product in the company's portfolio, is projected to experience a modest growth of 1% to 2%, potentially generating approximately $40 million in revenue. Strategies rooted in regional-based approaches are central to achieving this growth. Meanwhile, a decline is anticipated in royalty revenues, dropping to $3 million to $4 million for the current year, but prospects of a modest uptick are on the horizon starting in 2025.
The combined strength of Vascepa and Clozaril is expected to yield a consolidated revenue in the range of $60.5 million to $62.5 million, marking a 15% to 19% growth in net sales over the prior year for these marketed products. Integrating the projected royalties, the total revenue outlook for the year expands to $63.5 million to $66.5 million, registering a growth of 1% to 5%. Reflecting on the operational efficiencies and product-driven strategies, the company envisions surpassing the challenges posed by declining royalty revenues, with a focus on maintaining adjusted EBITDA levels consistent with the past year and setting a strong foundation for robust organic growth into the future.
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Good morning, and welcome to the Q4 and Fiscal 2023 Financial Results Conference Call for HLS Therapeutics. On this morning's call, we have Craig Millian, Chief Executive Officer; and John Hanna, Interim Chief Financial Officer. [Operator Instructions]
Earlier this morning, HLS issued a news release announcing its financial results for the 3 and 12 months ended December 31, 2023. This news release, along with the company's MD&A and financial statements, are available on HLS's website and on SEDAR.
Please note that slides accompanying today's call can be viewed via the webcast, a link to which is available in the company's earnings 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+ at www.sedarplus.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 the U.S. dollars, unless otherwise specified.
I would now like to turn the meeting over to Mr. Millian. Please go ahead, sir.
Thank you, Joelle. Good morning, everyone, and thank you for joining us. On our call today, I'll review highlights for the quarter and year, and John will follow with a more detailed look at our financial results, and then we'll have a Q&A session.
2023 was a year of transition for HLS with important changes made to the Board and management and a recalibration of strategy and objectives. We placed greater emphasis on operational execution to set the stage for improved performance of our core assets, Vascepa and Clozaril. 2023 wasn't without its challenges. But we entered 2024 confident that if we execute our plan, we will position HLS for considerable growth in the years to come.
I joined the company in May of last year. And in June, I brought in Brian Walsh as our new Head of Commercial. And in December, John Hanna was named our Interim CFO.
Last summer, John Welborn was appointed Board Chair and the Board's overall size was reduced from 10 to 8 members, incorporating 3 new additions to the Board, including myself.
As an initial action, the Board eliminated the dividend to focus on our share buyback as the preferred method for returning capital to shareholders. John Hanna, who is also a Board member officially took over CFO responsibilities in January. John has more than 25 years of diverse leadership experience, including in the health care industry as a C-level executive helping companies to drive revenue growth, scale their operations and expand operating profitability.
John's background, he is a public company CFO, along with his experience on our Board and his role on the Audit Committee make him a great fit as interim CFO. We have not yet initiated a search for a new CFO as I expect John to remain in the interim role through 2024. Shortly after I joined, we reviewed our pipeline products to determine our best allocation of resources. As announced on our Q2 call, we concluded that there was not an economically viable path forward for bringing PERSERIS to market after negotiations with the PCPA did not yield an acceptable agreement for public reimbursement.
We just recently completed an assessment on the commercial potential in Canada for Trinomia, a polypill combining 3 commonly used generic cardiovascular medicines. From the time HLS in-licensed the Canadian rights to Trinomia in 2017, there have been important changes to the landscape First, changes to medical guidelines around prophylactic use of aspirin have greatly reduced its utilization for primary prevention of cardiovascular events. Second, more restrictive trends in Canadian pricing make premium pricing for a product with all generic components highly unlikely. And lastly, the post-launch sales performance of Trinomia in several European markets is below what we believe would be a reasonable threshold to justify a launch in Canada.
Therefore, we will not pursue commercialization of Trinomia and have returned the Canadian rights. Now I'd like to briefly review financial results and operational highlights from 2023 with a focus on the actions we've taken to help shape a promising outlook. Financial results for fiscal 2023 included revenue growth of 2.5% to $63.1 million, adjusted EBITDA of $21.1 million compared to $23.8 million a year ago and cash from operations of $15.8 million compared to $16.9 million from previous year.
2023 revenue from our marketed products in Canada grew 6% or 10% in constant currency. Our priorities in 2023 were to set the conditions for continued growth of Vascepa with the path to near-term profitability and to maintain our profitable Clozaril business and opportunistically strengthen its position in Canada.
Let's start with Clozaril. It remains a consistent performer and generator of cash and is, of course, a continued focus of ours. For 2023, Clozaril revenue was $39.5 million, down 6% from a year ago. The decline in the U.S. was almost entirely due to a reserve release of $1.3 million in 2022, which had a favorable impact in 2022, not repeated in 2023. There was also a small decline in Clozaril sales in Canada driven primarily by payer mix and channel dynamics.
Importantly, the total number of patients on Clozaril in Canada at the end of 2023 grew by 1% versus the end of 2022, reflecting the underlying stability of Clozaril demand in the market. As we transition into 2024, our team continues to seek opportunities that we believe can drive modest growth for Clozaril. Depending on the local dynamics, we typically have 1 of 3 objectives in mind. One, expanding the number of treatment-resistant schizophrenia patients being initiated on clozapine treatment, where we have a leading market share; two, converting business from competitors where there is open access, and three, patient retention.
Depending on the objective, we have customized our approach accordingly. For example, leveraging Pronto in accounts where this technology can either help us protect at-risk business, convert new business or grow our patient base in existing accounts. Clozaril continues to enjoy a leading market position in Canada with significant market share in Ontario, and promising signs of growth in Western Canada. Beyond Canada, we've been encouraged by our recent performance in the U.S., where we are seeing signs of stabilization in unit volume, along with continued strong operating margins.
Our goal is to grow North American Clozaril net sales 1% to 2% annually on a go-forward basis which can have a profound impact on overall value when considering the favorable margins and extended runway for this brand.
Now turning to Vascepa. Revenue for 2023 was USD 13.2 million or CAD 17.8 million, up 44% over 2022 but just slightly below the low end of our revenue target range of CAD 18 million. The uptake in public plans continued to outpace private plan growth in Q4, which was a theme through much of 2023. Access to the public book of business is important to the long-term health of Vascepa. In that, it is eliminating a key barrier to prescribing. That said, the first full year of broad public access negatively impacted Vascepa gross to net, with revenue growth that didn't keep pace with unit growth.
I'd like to take a moment to review the important changes we made to our commercial strategy for Vascepa in 2023, with the dual goal of continuing to drive substantial growth while also ensuring we turned the corner on profitability starting in late 2024. First, we worked with our partner, Pfizer, to modify our go-to-market strategy with the goal to increase the productivity of our sales calls in primary care, increasing our focus on the highest potential targets while also realizing cost efficiencies by reducing total coal volume.
These changes took effect January 1 of this year, and we are off to a promising start. As a reminder, the HLS sales team calls on specialists and Pfizer is responsible for general practitioners or GPs. GPs are now writing about 55% of new Vascepa prescriptions. And with the new selling model in place, we are already seeing signs of that percentage growing further in 2024. We also work to improve access and reimbursement for Vascepa with a focus on Ontario and BC. After negotiations in BC. had hit a standstill for public reimbursement, we reengaged with the province in Q4 and ultimately announced a pharmacy (sic) [ product ] listing agreement, or PLA which was effective February 6 of this year.
BC is Canada's third largest province, so the PLA will significantly improve overall access and reimbursement for Vascepa. This listing increases national coverage to about 85% of public covered lives. The PLA also paved the way for Vascepa to be reimbursed by Pacific Blue Cross which provides health care benefits for approximately 40% of the privately insured lives in BC. We now estimate that Vascepa is covered for about 95% of private plan lives across Canada.
We have ramped up our commercial efforts in BC, and we have already begun to see an initial impact on prescribing.
In Ontario, our focus has been on reducing the delays experienced by new patients eligible for treatment under the province's public plan. In parallel, we are pursuing a less restrictive level of access known as an LU code. At the time of our Q3 call in November, the Ontario government wait time for processing new chronic medicine requests through their exceptional access program, or EAP, was around 50 business days. This backlog did start to clear towards year-end and helped drive an increase in public claims in Q4.
So far this year, we have seen even more improvement with average processing turnaround times of under 5 business days as of early March. This should serve as a tailwind to initiating new patients in 2024. As the backlog had frustrated some physicians to the point where they had paused all new patient initiations. We believe obtaining an LU code designation for Vascepa can be another catalyst for driving adoption in Ontario. The LU code vastly simplifies and accelerates the authorization process for a newly prescribed patient. In most cardiovascular medicines are reimbursed this way, we are actively engaging with provincial authorities to help move this forward.
Our Vascepa sales guidance for 2024 will not be conditional upon receiving the LU code, but it can serve as a potential additional catalyst. Building on our efforts to drive demand, we're also increasing our focus on streamlining the reimbursement process and improving patient retention. As such, we recently introduced several new enhancements to our Vascepa patient assistance program including dedicated field reimbursement support and nursing outreach to patients to optimize retention.
Our go-forward optimism for Vascepa is based on these and other actions we've taken to build on the continued strong prescription growth we experienced in 2023. Prescription growth in 2023 was driven by new prescribers along with more consistent prescribing from existing riders. Total prescribers increased 73% in Q4 2023 versus the same quarter prior year and 13% sequentially versus Q3. The average number of consistent prescribers grew 99% in Q4 versus the same quarter prior year and 21% sequentially versus Q3.
As a reminder, we define consistent prescribers as those physicians who have written a Vascepa prescription in at least 4 out of the 5 prior weeks. Because the average size of a prescription varies from province to province, growth in prescriptions look somewhat different than growth in units, which we define as 30-day bottles. As an example, Quebec was the fastest-growing province but had the smallest average size of prescription. As a result, total prescriptions grew 86% for the year, which translated into 30-day bottle or unit demand growth of 70% over the same time frame.
This difference, along with the growth in public payer claims helps explain the difference between net sales growth versus prescription growth.
Now I'd like to spend a few minutes looking at our financial outlook for 2024. I'll provide 2024 revenue guidance by product as well as a consolidated revenue and adjusted EBITDA projection. For Vascepa, we are expecting revenue growth of 55% to 70% over 2023. This represents a range of CAD 27.5 million to CAD 30 million which translates to USD 20.5 million to USD 22.5 million, assuming a similar exchange rate to 2023. To achieve this, we are projecting unit demand growth just slightly above the growth rates achieved in 2023.
Where we land in our sales guidance range will depend on 3 factors: one, the effectiveness of the changes made to the selling model; two, the impact of improvements to access and reimbursement, including the BC listing and continued process improvements in Ontario; and three, how the trend progresses between our public and private payer split. Importantly, we expect Vascepa to make a positive contribution to adjusted EBITDA starting in the fourth quarter of this year. This last point is key as we look to exit 2024 with 2 profitable products in our portfolio, Vascepa and Clozaril. With Clozaril, we're expecting 1% to 2% growth or revenue of approximately $40 million. We believe we can achieve this through the pursuit of the regional-based approaches I touched on earlier. As discussed on our last earnings call, we expect royalty revenue to decline to $3 million to $4 million in 2024, but then begin to grow modestly again starting in 2025. So to summarize our revenue outlook. We're looking for a combined revenue of $60.5 million to $62.5 million from Vascepa and Clozaril, which would represent 15% to 19% net sales growth over 2023 for our marketed products. Adding the expected royalty revenue of $3 million to $4 million results in a consolidated revenue outlook for 2024 of $63.5 million to $66.5 million or 1% to 5% growth over 2023. In 2023, over $10 million or about half of our total adjusted EBITDA was derived directly from royalty revenue. With the decline in royalties this year, less than 20% of 2024 adjusted EBITDA will be related to royalties and more than 80% will be driven by marketed product revenue growth along with greater OpEx efficiency. As such, we expect over 60% growth in product-driven non-royalty related adjusted EBITDA in 2024. Balancing growth in our marketed product portfolio against the impact of declining royalties, our goal is to maintain overall adjusted EBITDA levels in 2024, consistent with 2023. We expect to accomplish this through a combination of top line growth and cost management. The key takeaway is that top line and adjusted EBITDA growth from our marketed products is expected to improve in 2024. This should offset the negative impact of the substantial drop in royalty revenues and set us up for strong organic growth into the future. While I won't get into specific guidance beyond 2024, the growth outlook for 2025 should improve considerably on a consolidated basis for both top line and adjusted EBITDA. This is based on several factors. First, we expect to exit 2024 with 2 profitable products, and both will be profitable for the entirety of 2025 and beyond. Second, we have sales and marketing scale in our operating model such that operating margins for Vascepa will improve on a go-forward basis as top line grows. Third, the royalty portfolio is expected to grow again starting in 2025, albeit modestly. And finally, improved operating performance from our core portfolio and strengthening financials could support bringing in additional synergistic assets down the road. So to sum up, 2024 will be a year of operational execution where we expect to grow our marketed products, turn the corner on profitability for Vascepa and exit the year with momentum for more dynamic growth in 2025 and beyond. We remain confident that there is a large market for Vascepa and remain confident in its long-term potential to generate annual sales that will exceed CAD 100 million. Cardiovascular disease remains one of the top killers worldwide. Vascepa's excellent benefit risk profile, strong clinical data, positioning and guidelines and increasingly broad access and reimbursement will continue to drive physician adoption. We just held our first HLS sales meeting in 2 years, and I can confidently report that the entire team is energized and motivated by the potential of our product portfolio to make a difference in the lives of so many patients. With that, I'm very pleased to welcome John to his first earnings call as our interim CFO, and will turn it over to him now for a closer look at the numbers. John?
Thank you, Craig, and good morning, everybody. Starting with revenue. Total revenue for Q4 was $15.9 million up 1% from Q4 last year and fiscal 2023 revenue was $63.1 million, up 3% from 2022. Excluding royalties, revenue from marketed products in Q4 was $14.3 million, up 6.5% from Q4 last year and for the year was $52.7 million, up 2% over 2022. In constant currency terms, Canadian product sales for Q4 and for 2023 were up 11% and 10%, respectively. Sales growth in Canada was led by Vascepa, which was up 42% in Q4 and 44% for the year. Previously, we have said that the growth in net sales would trail the growth in prescriptions as the business adjusted to the addition of public reimbursement, a process that began in the second half of last year.
Turning to Clozaril. Q4 was the strongest quarter of the year for both Canadian and U.S. markets. Canadian Clozaril product sales were down 1% and 2% for Q4 and 2023, respectively. While the number of patients continues to grow, up 1% for the year. U.S. Clozaril product sales were up 17% sequentially, but down 4% and 8% for Q4 and 2023, respectively. 2022 saw the benefit of the release of provisions for product returns. Without that benefit in 2022, the year-over-year sales would have been more or less flat. Royalty revenues were $1.6 million in Q4 down 30% from Q4 last year and for the year were $10.3 million, up 6% from 2022. As discussed on the last call, the royalty term for what was the largest royalty in the portfolio came to an end midway through Q4. Craig discussed the impact of this going forward in his outlook section. We do expect that 2024 will be the bottom from which the royalty portfolio will then begin to grow driven largely by Sanofi's Genzyme. Turning to operating expense. The growth in Vascepa shipments is the largest driver of the 44% increase in cost of product sales for 2023. Selling and marketing expenses increased by 11% in 2023 as a result of the increase in promotional efforts for Vascepa, particularly the investment in the Pfizer partnership targeting primary care. With the amended partnership agreement, we expect cost savings in the 2024 on the Pfizer selling efforts. Both for the quarter and the year, our medical, regulatory and G&A costs were lower as we maintain prudent cost control throughout the business. For example, G&A decreased sequentially in Q4 to $1.9 million from $2.3 million in Q3. Adjusted EBITDA for Q4 was $5.3 million, flat as compared to Q4 last year and for 2023 was $21.1 million compared to $23.8 million in 2022. For 2023, the direct contribution to adjusted EBITDA from Clozaril was $29.7 million and the direct contribution to adjusted EBITDA from Vascepa was a loss of $9.2 million. As Craig mentioned, we expect Vascepa to make a positive direct contribution to adjusted EBITDA beginning in the fourth quarter of 2022 excuse me, 2024. Cash from operations in 2023 was $15.8 million compared to $16.9 million in 2022. Cash and cash equivalents were $22.0 million at December 31, up from $20.7 million in the prior year. Subsequent to the year-end, HLS amended the terms of its credit agreement to modify certain covenant ratios. This was done to provide us with operating flexibility while revenue for Vascepa continues to ramp in 2024, and while the royalty portfolio experiences a decline in Q1 2024 before beginning to grow again in subsequent quarters. Under the amended agreement, the company's revolving facility has been reduced to $25 million from $30 million and allowable restricted payments such as NCIB purchases have been capped at approximately $2.5 million for 2024. The company's expansion facility up to $70 million to support growth opportunities remains in place. We continue to view the NCIB as an important aspect of our capital allocation strategy. As we move through the year, we expect to increase our buyback activity within the parameters of the amended agreement.
Finally, we continue to delever our balance sheet with the principal amount of the senior secured term loan outstanding at December 31, 2023, being $88.5 million, down from $97.3 million at the end of last year. And with that, I'll pass it back to Craig for his closing comments.
Thanks, John. To sum up, 2024 is a year where we are laser-focused on executing our business plan to drive growth and profitability with our core portfolio. We're off to a good start with the rollout of Vascepa's updated go-to-market model with Pfizer, significantly improved access and reimbursement in BC and improved turnaround times to clear the backlog in Ontario. As a result, we expect accelerated growth for Vascepa in 2024 with a positive contribution to adjusted EBITDA starting in Q4. We will then look to carry that momentum into 2025 and beyond.
Clozaril remains a cornerstone of our business, and we continue to actively seek incremental growth opportunities in 2024 while maintaining strong margins. We're optimistic about the potential to exit 2024 with a growing and increasingly profitable product portfolio which will set us up well for considerable growth in the coming years. That concludes my prepared remarks. At this point, I will ask the operator to please provide instructions for asking a question. Operator?
[Operator Instructions] Your first question comes from Michael Freeman with Raymond James.
Craig and John, congrats on the results. My first question is on some news that came last week. So Wegovy was approved in the U.S. to reduce the risk of cardiovascular events. And we were sort of speculating on this approval and the -- I guess, how the data looked exactly last quarter, now we see the data. And I wonder how -- if you could provide some commentary on how this approval may or may not impact Vascepa's market opportunity and how you would compare the data that we now see versus the REDUCE-IT trial?
Yes. Thanks for the question, Michael. And certainly exciting news for Wegovy with the SELECT trial. Let me start by saying we think, in general, it's a positive that companies are out there educating on the importance of treating cardiovascular risk because that really creates the right context for the messaging around the benefits of Vascepa. So in many ways, the more of us out there you're talking about that actually amplifies what we're trying to say about our product. Specifically, as it relates to comparing Vascepa with Wegovy, of course, there are important differences with the products. I mean the -- obviously, they were studied in very different patient populations. Select is a study in obese patients without diabetes. They're not -- I don't believe they were secondary prevention patients. So it's difficult to compare across trials. So we'll start there, very different patient populations. The thing that -- and this is actually something we're emphasizing more and more in our messaging and it's resonating with both specialists and with primary care physicians is that really across all medicines in the cardiovascular risk space, and I would include GLP-1, statins, PCSK9s. Actually, Vascepa is the only one that showed a statistically significant benefit in reducing cardiovascular death, when you break that out from the composite MACE endpoint. So in other words, all these drugs have shown obviously benefits in reducing risk across the 3-point or 5-point MACE composite cardiovascular endpoint. But as far as I know, none of them has actually shown a statistically significant benefit in terms of reducing cardiovascular death, which in many ways is the primary goal, right? We're trying to prevent death. So we think that's a really important point of differentiation globally. And again, I want to have the caveat that we don't compare across clinical trials. This is just an observation. Obviously, the side effect profiles are very different with Wegovy. It has its unique side effect profile. And I'll refer you to their studies in terms of the number of patients reporting serious side effects and actually dropping out. I think if we look at Vascepa's benefit risk profile and side effect profile, I think it's quite favorable. Of course, we also know that in Canada and across many markets, there are issues around availability, accessibility and affordability for these GLP-1 specific to obesity. And as far as I know, I don't believe Wegovy has been approved yet by CADTH in terms of pricing. So our belief is that Vascepa as it relates to its role certainly in secondary prevention, we think the REDUCE-IT data are second to none. We're very confident in our benefit risk profile. I think if you go through and compare the number needed to treat within the REDUCE-IT trial to see improvements either in the primary or secondary endpoints. I think you'll see again our data compare favorably not just to SELECT but to really any competitor out there. So again, I'll just close by saying these are orthogonal mechanisms, right? The beauty of Vascepa is it works obviously in a different physiologic way. And so many patients will benefit from using different classes of medicines. So we don't necessarily view this as an either/or.
So long-winded answer, but I know this is on many analysts and investors' minds. And what I would summarize by saying great news for patients with that data, but we don't think it has really any impact on Vascepa. And again, we're very confident in our data, our risk benefit profile, the inclusions in guidelines, the reimbursement we're getting and frankly, the progress we're seeing in terms of physician adoption.
I really appreciate your commentary on that. Now for my next question, we appreciate you providing guidance for this year and even beyond. Noticed that business development decided as a growth driver beyond 2024. Does this -- should this be interpreted as BD not being part of the playbook for this year? And I guess, as you do approach the sort of business development activity, how would you envision sort of the size of transaction that you might undertake?
Right. That's a good question. So I wouldn't interpret it as there's a prohibition of us pursuing business development activity. We do have the expansion facility. We've got obviously means of transacting. I think that being said, it's not our core strategic focus. As I said, the main thing the management team and the board are focused on is ensuring that we execute our business plan and drive results with our core portfolio and demonstrate quarter-to-quarter that we can deliver on an ambitious set of numbers for this year, but we believe an achievable set of numbers. So I think that's the first task at hand. That said, we're constantly surveying the landscape, and we've talked about this in the past, whether that's a kind of an incremental opportunity in Canada to do a bolt-on and leverage the footprint and the capabilities that we have here. And obviously, if we could bring in an asset that's accretive, that's a deal that I think is easier to execute, let's say, than doing a strategic transaction or pursuing M&A in the U.S. None of it is out of scope, but being realistic, our aperture is narrow right now in terms of dealmaking based on where our stock is at and obviously, are positioned in terms of our balance sheet flexibility. So it doesn't mean we can't do a deal, and we are always looking across the horizon. We're in conversations all the time. But we're going to be extremely picky, and we're going to be extremely judicious in terms of our use of capital, and it's going to have to be either something that's accretive or something that's an obvious strategic fit or where there's an obvious opportunity for synergy and value creation that I can pass the red face test in speaking to our investors and others to say why we would do this. So I would say as time goes on and as we demonstrate our ability to deliver on, again, our ambitious goals with our product portfolio, I think that aperture widens. And certainly our intent, whether it's this year, or beyond is certainly to increase scale of the organization, bring in additional assets, certainly in Canada but also in the U.S.
Got it. And if I could shoehorn 1 more short 1. In that guidance, you also mentioned that envisioned the royalty portfolio to begin growing again in 2025. Is this part of the existing royalty portfolio deal structure or the structure of those individual royalties? Or do you envision adding new royalties.
Yes. So good question. So our strategy does not include pursuing new royalties. So this is the existing royalty portfolio. The main driver of that is our royalty interest in [ Genzyme ] which is still early, very early in its launch cycle. I think it just launched a couple of years ago. So very much still in its growth phase. So that will be the driver of growth. And to be -- to manage expectations, we don't expect that totality of our royalty portfolio to get back to where it was, say, in 2023, but we do expect growth to hit a low at the early part of this year and then to start growing again.
Your next question comes from David Martin with Bloom Burton.
I'm wondering what things have to happen both at HLS and at the province between now and switching to limited use from exceptional access? And is there a time line for those steps?
Yes. David, thanks for your question. And I wish I had a simple answer for you. Unfortunately, there's no kind of predefined recipe for how one gets from EAP to LU. It's very -- in some respect, it's somewhat arbitrary and left to the discretion of the bureaucrats in the ministry.
What I'll say is, we have been working actively behind the scenes, leveraging some very well-regarded consultants who have good access to -- at all levels within the ministry in Ontario to do 2 things. One is to -- and we've actually been activating the prescribing community as well who've been very frustrated about this and we believe some of our behind-the-scenes activities have actually resulted in that significant improvement even in terms of the current program, the exceptional access program, where, as you recall, not that long ago coming out of last summer, it was well over 50 business days to get a new Vascepa patient authorized and on to treatment, and that's come down significantly. So I think we believe our efforts have helped in that regard. In parallel, though, as I mentioned, we are very aggressively building an evidence-based case of why Vascepa should be moved to the LU code. Again, if you compare us to pretty much every other cardiovascular medicine, they have that level of access. And so if you look at the criteria in terms of you kind of extrapolate what those criteria are, we check all those boxes. We've been on the market now for a number of years. We've had -- we've been on the public listing for about 18 months. We believe that the product is being prescribed appropriately and based on criteria. So we believe we've checked those boxes. And now it's just a matter of the agreement of the decision-makers at the ministry to make that change. And so I don't have -- I wish I had a specific time line for when that will happen. We still believe it will happen in 2024. But again, it's really not up to me. But what I can say is that is our strategy. We will continue to tirelessly pursue that LU code, and we think it will make a big difference. And obviously, it's another nice catalyst when we do get it.
Do you have estimates of peak sales if you do get it versus you don't get it?
We've got sensitivities around that. And I'm not -- I think, at this point, I probably wouldn't go into kind of detail on that because I think there's probably a broader context around the longer-term guidance where that would fit in. What I would say is, our expectation independent of Value Code is that we'll get to CAD 100 million. I think there's a belief that the LU code is highly likely. There's no reason why we wouldn't get there. I think the question would be, at what point do we get that access that LU code level of access. So I think the time to get to CAD 100 million will be in some part, determined by how quickly we get the LU code, but I don't necessarily think it's going to impact our ability to get there.
Great. Just one quick follow-up. In BC, is the listing of the drug? Is it exceptional access? Or is it LU or the equivalent thereof.
Right. Yes. So the -- and I apologize, I don't know the specific names of the programs off the top of my head. But basically, if you think of the analogy of the exceptional access program, what that would look like in BC. It is closer to exceptional access than it would be to LU code. But the important distinction here is each province is a little bit different in terms of the efficiency of how those programs are adjudicated. So for example, in Quebec, it's also on an exceptional access type program but we've never had any sort of significant issues in terms of physician feedback that they can't get patients onto treatment or that there's that's particularly cumbersome. They're well -- they're very familiar with the process, and it's just part of how they go about their business. We think BC is probably -- will be closer to Quebec in terms of the familiarity and comfort level of using that program. Again, the issue in Ontario was some of the complexity around their exceptional access program. And more importantly, the duration of time from submitting a new prescription per patient at the time, it was actually authorized. We don't anticipate and frankly, it's early days, but we haven't seen those sort of issues in BC.
Next question comes from Justin Keywood with Stifel.
Just hoping you could help us bridge the expectation for flat EBITDA in 2024, given that 50% is implied to be impacted comparing to 2023 and would be about a 30% overall reduction on a last 12 months basis. Is that expectation of flat EBITDA is the way to look at it heavily back-end weighted?
So, yes. I'm not going to kind of get into the kind of the quarterly specifics of how we get there. But what I will say, Justin, is how we get there is a combination of top line growth obviously, with Vascepa and we expect just a little bit with Clozaril married with cost management. So we are looking at being prudent with our spend this year. You're aware of the changes we made to our selling model with Pfizer. We expect considerable savings from that, which will take -- largely take to the bottom line. And so it will require -- because you're absolutely right, the margins on the royalty are 100% and the margins on our promoted products are something less than 100%. So that will require us to do just a little bit of belt tightening as it relates to OpEx management in 2024. We've got a plan in place that we think strikes the right balance of ensuring adequate investment to continue to grow our portfolio. The last thing we want to do is stymie the growth we're seeing, for example, with Vascepa or do anything that damages Clozaril. So our first principle is do no harm. But there's a belief that with more active cost management, there's some savings that we can identify, and we're working to do that. And those -- that combination should get us to EBITDA -- EBITDA neutral by -- for 2024.
Understood. Just a follow-up question on the GLP versus Vascepa. Is there not a form factor benefit with Vascepa with the pill versus injectable? Is that something you see among your patient base?
Yes. That's a great point. And I didn't get it again because we don't view -- when I think of something like Wegovy. I don't view it as a competitor. It's for a completely different indication, different patient population. It's a different. If you look at the studies, there are 2 entirely different patient populations. Again -- and I would absolutely encourage everyone to kind of look at, again, our numbers -- and converted to a number needed to treat to achieve our end points and look at our specific benefit in cardiovascular death reduction and benchmark it against any competitor. And from a clinical perspective, it's quite strong, but it's not a competitor. And so -- but you're absolutely right. Obviously, these are injectables. They require self-injection on a weekly basis. And obviously, patients always prefer, don't always, but generally prefer oral meds to injectables.
Understood. And then just a question for John, if I may. Just if you have the leverage ratio and if there's a comfort range as far as net debt to adjusted EBITDA that you look for?
Thanks for the question. I won't get into ratios. I think what I would say to you is that at the end of 2023, we were in compliance with all ratios and all forward-looking requirements under the agreement. In February of 2024, we did the amendment that we described just to ensure that we have the headroom as the ratios are on a trailing basis and some of the charges that were coming through in the final quarters of 2023 and the profile for the company going forward, wanted to just make sure we have the room as we ran through 2024, and we're building back up.
Your next question comes from George Ulybyshev with Clarus Securities.
Can you give us an idea how things are progressing when it comes to the go-to-market model adjustment with Pfizer. Are there any specific metrics you guys are tracking to see how impactful the strategy is?
Yes. Thanks for that question. So again, the new model was just put in place January 1, so it is early days. What I would say is a couple of things we track closely. We shared one of the key performance indicators, which is what percentage of new prescriptions are being driven by general practitioners versus specialists? And again, we exited last year at about 55% of new prescriptions being written by GPs, which are called on by Pfizer, and we expect that percentage to increase and we're seeing signs of that. Beyond that, the other thing that we'll track closely, George, is we changed -- and we're very excited about the changes we made to the targeting and basically ensuring that we are focused on the highest potential prescribers, and we're increasing frequency of call activity against the highest prescribers and the highest potential writers and those that we find to be promotionally responsive. And so it's somewhat of a dynamic model, and we'll be looking to see if that call activity and changing that cadence of call activity and changing the targeting, if that's having the desired effect of driving more prescribing in those segments. And so what I'd say is the partnership, we have regular interactions with Pfizer. At the field level, it's seamless between our sales organization and theirs. Everybody is very excited about Vascepa. And as I said, we just had the sales meeting with our team a few weeks ago, and they came out of it really ready to go. So we'll continue to track their progress in primary care. And obviously, to see if the new model is driving the prescribing with that increased call activity against the highest potential writers.
Got it. Got it. On Clozaril, is there anything you can share when it comes to relative market share versus generics? Any numbers you can give us?
Yes. Thanks for the question, George. We -- for competitive reasons, we've not provided that, and we can certainly take that back and revisit it. But because it's a -- it is a competitive market, we've not shared that. What I would say is we do have a leading market share in Ontario, for certain, it's a very strong market share. And what I would also say is out West in BC, in particular, where we've increased our activities, we're seeing some nice growth. We've got headroom there to grow from a market share perspective, and that's where we've seen some nice gains throughout last year, and we expect that to continue. But I won't provide kind of specific numbers at this point.
Understood. Understood. And one last question on Vascepa. Can you give us a sense of the approval rates as of in Q4 in Ontario and Quebec on the public reimbursement side?
In terms of?
Like the percentage I think it was close to 80% to 90% in the second quarter for Ontario. Just trying to get a sense for what...
Ontario, they don't generally share that. So a lot of its extrapolation, but that would be a good estimate in terms of percentage that are approved, would likely be in that 80% to 90% range.
Okay. Got it. For both Ontario and Quebec?
Yes, yes. That would be -- again, it's an estimate, but I'd have to get back to you with more specific data again, in terms of how that's reported, particularly in Ontario, they don't generally give us that information. So part of it is an estimate on our end and an extrapolation, but that would be a reasonable estimate.
Thank you. [Operator Instructions] There are no further questions at this time. Please proceed.
Great. Well, thank you, Joelle, and thanks to everyone for participating on today's call. We look forward to reporting to you on our progress in the coming quarters and speaking with you again soon. Thanks. Goodbye.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.