Theratechnologies Inc.
Q2 2021 Earnings Call Transcript

Published: 15 Jul 2021

[Operator:]

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Theratechnologies Conference Call. At this time, all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. . I would like to remind everyone that this conference call is being recorded today, July 15th at 8

[Denis Boucher:]

Thank you very much. Mr. Paul Levesque, President and Chief Executive Officer of Theratechnologies; and Mr. Philippe Dubuc, Senior Vice President and Chief Financial Officer, will be the speakers on today's call. A Q&A period will follow their presentation. Before Paul begins his remarks, I've been asked by Theratechnologies to read the following message regarding forward-looking statements. I would like to remind everyone that Theratechnologies remarks today contain forward-looking statements about its current and future plans, expectations, and intentions, results, levels of activity, performance, goals or achievements, or other future events or developments. In preparing these forward-looking statements, several assumptions were made by Theratechnologies and there are risks that results actually obtained by the company will differ materially from those statements. As a consequence, the company cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on that. Theratechnologies refers current and potential investors to the Forward-Looking Information section of its Management's Discussion and Analysis, issued this morning, and available at www.sedar.com and on EDGAR at www.sec.gov. Forward-looking statements represent Theratechnologies expectations as of July 15, 2021. Except as maybe required by Securities Laws, Theratechnologies does not undertake any obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise. I would now like to turn the conference over to Paul.

[Paul Levesque:]

Thank you Denis and good morning everyone and thank you for being with us today. Much has happened at Theratechnologies over the last six months as we continue to integrate step wise changes that are intended to best optimize our business and position the company for long-term growth. An interesting aspect of our story that is not always understood, however, is that we have one foot in a clearly established revenue generating commercial business with potential for upside and in other split in an extremely promising pipeline in early stage oncology late stage NASH development and lifestyle lifecycle management for our commercial portfolio. We firmly believe that the phase one program evaluating our lead peptide-drug conjugate TH1902 for treating sortilin expressing cancers and our Phase 3 development programs evaluating tesamorelin for the treatment of NASH both hold true promise to benefit patient communities in areas of unmet medical needs as well as our stakeholders as we continue to strengthen our foundation for growth.

[Philippe Dubuc:]

Thanks Paul and good morning everyone. Consolidated revenues for the second quarter of fiscal 2021 were $17.8 million, an increase of 4% over Q2 2020, mostly due to an increase in EGRIFTA SV sales and hampered by lower sales of Trogarzo. Net sales of EGRIFTA SV were $10.3 million up 12% from the same period last year when we recorded sales of 9.3 million. Unit sales of EGRIFTA were relatively stable compared to last year, but net sales were better due to a higher net selling price and lower rebates to public payers. Given the switch from EGRIFTA SV from the old version of EGRIFTA, which carried higher percentage discounts than EGRIFTA SV. Trogarzo revenues were down 6% year-over-year as a result of lower sales to specialty pharmacies, the effect of the ongoing COVID-19 pandemic resulting in difficulty for patients to visit healthcare facilities to meet with physicians and obtain their intravenous infusion, competitive pressures and slightly higher rebates as well. These factors were partially offset by a higher selling price and recall that in Q2 2020 at the beginning of the pandemic, net sales of Trogarzo were positively impacted by unusually large orders by pharmacies, which has since stabilized. In the EU while the COVID situation is still problematic, mostly with respect to patients getting on boarded on therapy, our team in Europe continues to identify patients. We believe that the latter part of the year may provide incremental gains. Pricing discussions are progressing in the EU and reception has been positive. With this in mind, we have laid the groundwork to growing revenues of the Theratechnologies franchise and expect to see our efforts bear fruit from these strategic initiatives. Cost of sales in Q2 2021 was down to $5.9 million compared to $7.3 million for the same quarter last year. The decrease is mostly due to higher gross margins on EGRIFTA SV compared to EGRIFTA as well as a lower transfer price for Trogarzo given the achievement of a predetermined amount of net sales in Q3 of last year. R&D expenses amounted to $6.4 million in Q2 2021 compared to $3.6 million for the same quarter last year. This increase is largely due to higher spending in oncology with the initiation of our Phase 1 trial, increased activity related to our NASH program, including on the new F8 formulation, increased spending in medical and patient education, as well as higher medical affairs initiatives in Europe. For the three-month period ended May 31, 2021 selling expenses were on par with Q2 2020 and were stable at $6.9 million. G&A expenses amounted to $3.9 million in Q2, up slightly from $3.7 million in Q2 2020. The increase in G&A expenses is largely due to increased overall business activity in 2021, compared to 2020. This increase is partly offset by one-time items incurred in 2020 as a result of the retirement of the company's previous CEO. In Q2 2021, we recorded $1 million in net finance costs compared to $1.4 million in Q2 2020. As previously stated, finance costs comprised of interest on convertible notes, as well as accretion expense. Net finance costs in 2021 were reduced by foreign exchange gains of $378,000. For the second quarter of 2021, we recorded a negative EBITDA of $2.6 million compared to negative $1.5 million last year. This difference is mainly due to a higher net loss during the quarter. For the second quarter of 2021, our operations including variations in working capital used approximately $700,000 of cash, which explains why our cash balance has remained virtually identical to that of February 28, 2021 at approximately $57 million. I will now turn the call back to Paul for some closing remarks.

[Paul Levesque:]

Thank you Philippe. Looking back at the first half of the year, we're pleased with the organization that we have become. The innovation that we are developing is really special and has the ability to greatly improve. And in many instances, transform patients' lives across areas of high unmet medical need. As we look to carry this momentum through the remainder of 2021, I am ever the more confident that we will improve our commercial business while advancing our research pipeline. In the short-term our priorities remain focused on delivering growth from our commercial portfolio, completing the dose escalation part of our oncology trial, and of course, exploring opportunities including finding a potential partner to maximize the value of our Phase 3 NASH program. And with that, we will now open the call to take your questions. As the operator mentioned at the beginning of this call, I would like to remind you that you can submit a question in written form via the webcast platform. Please register on the webcast link, which is available in the events section of our investor website to submit your question.

[Operator:]

. Our first question comes from André Uddin with Research Capital.

[André Uddin:]

Good morning, everyone. Thanks. In terms of your NASH potential partnership, which I think is actually a great idea, can you please describe your ideal partner, will you look for them to fully fund the Phase 3 trial or will you look to co-develop it and then later co-promote it? And also with this potential partner, would you look to co-promote EGRIFTA for HIV? Thanks.

[Paul Levesque:]

Well thank you André for the question, and I'm glad you feel that way. This is certainly a position of strength that we're facing at this time. We have an approved protocol in our lap. There are not too many companies that can actually in such an area of unmet medical need be in a position like this. When it comes down to the ideal partner I think that it can take different forms. I mean, it's kind of too early to actually take a look at all the possibilities that are ahead, but there are certainly the ones that comes with co-development, co-promotion, so co-commercialization down the road. Other companies may decide to actually that they want to invest but they want -- they would want us to continue the development and maybe have a piece of the commercialization later on. So I think that we have already with our advisor have done a mapping of the potential pharmaceutical companies, big companies, medium size with an interest in NASH, and we know what these companies are. And I think that we'll see down the road what type of partnership we can sign with them. But one thing is for sure, nobody knows tesamorelin more than we do. So we need to actually keep investing, keep unfolding our plan, and we're fully committed to put that to life with a partner or with other means that we're going to find in the upcoming months.

[André Uddin:]

Okay. And just also on the business development front, are you looking to add any new commercial stage products that you think would fit with your current salesforce?

[Paul Levesque:]

The answer is yes. We are on the lookout and this is a strategy that makes a lot of sense for us because we've got two products in the bag in the U.S. We have only one product in Europe. So we'll take a look at how we can identify what I call a drug companion that could actually synergize with the portfolio that we have and that would increase the critical mass of assets, that would make sense for the target of doctors that we are calling on at this time. So, we will actually do some work. We've already started. Again, the pandemic made some of that more complicated, but we will look into it and we'll see if we find that sweet spot again with the ideal companion.

[André Uddin:]

Okay. And just also one last question here. I just saw that there is an EGRIFTA Phase 2 trial being run with a 100 HIV patients with MCI or mild cognitive impairment. Can you discuss how this trial came about and when the results for that trial are expected roughly if you know?

[Paul Levesque:]

Hey, Christian do you want to handle this.

[Christian Marsolais:]

Absolute, André. Thank you for the question. I don't know André if you remember, but we have done first a number of years ago a study in non-HIV in the general population in mild cognitively impaired patients with Dr. Vitiello and we have shown positive results. Following that study, there's also studies showing in HIV that an increased waist circumference is also associated with mild cognitive impairment and Dr. Chris and Ron Ellis have been working with us to start that trial and that trial has been ongoing for a number, probably about two years now. We hoped that the recruitment will be completed in 2022, and if there's a six months study, then we should potentially see results in 2023. And it's a good rationale based on the preceding studies that were done with EGRIFTA.

[André Uddin:]

So all the patients in that trial are HIV?

[Christian Marsolais:]

All the patients in that trial are HIV. It is linked to a study that Dr. Ron Ellis, a physio neurological study that Dr. Ron Ellis had done in the past showing the link between increased waist circumference, which has increased post issue or ectopic fat and decrease in cognition.

[André Uddin:]

Okay, great, thank you. That's it for me.

[Operator:]

Our next question comes from Edward Nash with Canaccord Genuity.

[Edward Nash:]

Hi, good morning guys. So I wanted to understand, so I know that we just got the protocol now approved, I guess, officially, but we've known since roughly almost a year ago now that you were not going to be allowed or the agency was not going to be receptive to you looking at only NASH patients that had HIV. So I'm just trying to understand now that you're -- now that you're deciding to partner and your cash balance is what it is, which is going to drive the decision, but we already kind of knew what your cash balance was then too, so just what's changed between since last year and now with regards to your decision to look for a partner for the Phase 3 NASH?

[Paul Levesque:]

Well, thank you very much. Listen, what has changed is that the cohort size now has increased and through the negotiation with the agencies they have asked for additional monitoring to be done. And the monitoring is something that we had partially anticipated, but that's the type of thing that comes out when you negotiate with the agencies. All of that is increasing costs just about 25%. 25% over the period of time of that trial is significant. And I think that this is the sweet spot now that we are facing, because we have a protocol that is ready to proceed and I think that if there is a moment where we can with credibility attract and discuss with a potential partner, it is now. Having done that six months ago, we were in the midst of interacting with the agencies at that time so, first thing they would have asked is tell me more. And I think that we would like to see if the partner wants to actually be part of the beginning of that trial. So this is the moment that we're in. It's the ideal time. I think that if the partner would like to team up, take a look at the protocol it's not too late. We can do different things if needed. But the protocol is ready to proceed and we have all the confidence in the world that this protocol will tip this to an approval. So going back to your question, I think that what has changed is the additional cost, the complexity of this trial, and I think it's prudent and probably a good thing that we explore the opportunity of having a partner in at this time. Thank you for your question.

[Edward Nash:]

Thanks, that was helpful. And I guess the second part to that is just with regards to the modeling this. I mean, obviously this could go -- this can take many different forms as you mentioned. But of the six Phase 3, six companies running Phase 3 right now for NASH they're all in this alone. And just wanted to know on that side, have you already guys have -- have you already had people having accessed the data on a confidential basis showing interest or is this kind of an effort that's now that you have a busy guy on Board, is this something that's just now starting new from scratch?

[Paul Levesque:]

Well, I'm not going to get into the details, but the outreach has started and the discussions are ongoing and I cannot reveal where we are. But this is serious stuff. There's a fair amount of interest at this time and we're going to go through the pro-step process step wise and we'll let you know once we have more to say.

[Edward Nash:]

Got it, that's great. And then my last question is just with regard to the F8 formulation, the pin formulation, can you remind us again when you expect to have that available to replace the EGRIFTA SV?

[Paul Levesque:]

Chris, you want to…?

[Christian Marsolais:]

Yeah, absolutely. The plan is to submit the dose here in the first quarter of 2022, then it should be available, except it's a five month review, then it should be available towards the third-fourth quarter of 2022. And the main reason is that we need to gather more stability like the F8 is relatively new and we are gathering stability data.

[Edward Nash:]

Great. Thank you so much, guys.

[Operator:]

Our next question comes from Endri Leno with National Bank.

[Endri Leno:]

I'll pick up again with NASH and I have a couple more after that. But, the question I had is that what possibility do you guys foresee that a partner may ask for general NASH deed prior to an agreement?

[Paul Levesque:]

Would you mind repeating your question because the line wasn't all that clear and we couldn't hear you very well.

[Endri Leno:]

Sure. Yeah. So what is the possibility that you guys foresee that a partner may ask for a general NASH data prior to an agreement?

[Paul Levesque:]

Well, I mean, this is an interesting question. But, we've got a ready to proceed protocol at this time that has been negotiated. So, I think that the two agencies were pleased with what we actually presented in front of them. And quite frankly, over the last 12 months we have broadened our support for tesamorelin in the general population. You would remember that to get to this point it's been a pretty long journey. We started with having an interest in NASH in the HIV population and based with -- based on our early interaction with the agencies, we actually were told that we should actually think about the general population. And we actually look forward to that and we ended up broadening our support among the experts in the industry. And I think now we're all set to go. Christian, do you want to add anything.

[Christian Marsolais:]

Yeah, maybe and just to -- I will go back into the scientific side of the mechanism of action. There's a clear association between decrease release in GH and increased deposit issue and increase in liver fat in both patient population, non-HIV and HIV. And that's really the mechanism of action that we're targeting. The other thing that we have done so far, we have done study with EGRIFTA in both HIV and non-HIV. In both patient population we have shown a good similar decrease in this deposit issue and in the HIV population, we have shown a decrease in liver fat of about 40%, which we think is the same because there's a good correlation between the decrease in this deposit issue and liver fat therefore in the general populations, it should be similar. And all of our experts that we work and independent expert that we worked with told us that this is the best way and the best approach to go. Then we're very confident with the data that we have, and it was supported by the regulatory agencies that we can go ahead and move into general population.

[Endri Leno:]

Okay, great. Thank you for that. Actually, one more perhaps for Christian. If you can please refresh us on the current endpoint from the last protocol versus your prior expectations and the results already obtained in Trogarzo NASH, please? Thanks.

[Christian Marsolais:]

Yes, you mean for the EGRIFTA NASH in terms of the end point for the Phase 3 trial?

[Endri Leno:]

Yes, please.

[Christian Marsolais:]

Yeah, what we are looking at the moment is a normalization in the NASH patient who will be -- we'll have NASH 4 and more at the entry and fibrosis about 2 or 3. We're looking at the normalization of NASH in 10% of the patient. This is a primary end point without a negative impact on fibrosis. But fibrosis will also be assessed and fibrosis will be a secondary endpoint and based on the data and recent publication from Dr. Loomba, we know that the decrease of 30% in liver fat is associated with normalization of NASH and is also associated with decrease of fibrosis. Then we're quite confident in those two endpoint for the Phase 3 program.

[Endri Leno:]

Great, thank you. My other question is more to do with the sales in the quarter for Trogarzo. I don't know if you guys are able to provide a bit of a breakdown on the 6% decline and how much of that was due to lower volumes, how much was due to competition and then rebates?

[Paul Levesque:]

Philippe, do you have a few, I think you had a few statements in your speech, can you go ahead?

[Philippe Dubuc:]

Oh, sure. Sure. So, Endri it's really a mix of everything. So we are -- we did see lower unit volumes. Trogarzo has been more effected by the pandemic, especially when immunocompromised patients are told to stay at home. So that was affected -- it affected the unit sales, it affected new prescriptions as well. Remember last year there was a huge spike in orders from pharmacies at the beginning of the pandemic. So that kind of normal doubt a little bit during that quarter last year. But still inventory levels at the end of last quarter were kind of high. So it's really a mix of everything that resulted in this minus 6% in sales.

[Endri Leno:]

Okay. No, great. Thank you. But, as we're looking more into, I mean, especially volumes, like what are you seeing or what do you expect to see over the next few quarters, I mean, given that most of the things are pretty much open in the U.S. the last quarter and as we see new cases starting to ramp up a little bit, I mean, should we expect sales or volumes at least flattish or a bit below or a bit up trending upwards?

[Paul Levesque:]

Well, thank you for the questions. We are into this for growth. So, we're committed to Trogarzo, we're committed to EGRIFTA. The good news is now the field force are up and running. Again, face-to-face calls are increasing and obviously that's the best way we can get our messages out to our physicians and patients somehow. So, we are optimistic that we're going to be firming up the performance of both assets. Things has slowed down, has slowed down in Europe due to the pandemic and the lockdown. Now we will resume our pricing and negotiation. What is important to me quite frankly is that this drug Trogarzo be relevant to patients and HCPs, and we are going to work hard because we know that they need alternatives to treat their patients. So we foresee growth with both assets in the upcoming months, and we're going to work hard to make that happen. And I think that I would leave it at that for now.

[Endri Leno:]

Okay, great. Thank you. And one last one for me, if you guys can talk a little bit in terms of costs, how do you see them over the next two to four quarters?

[Paul Levesque:]

Philippe do you want to take that?

[Philippe Dubuc:]

Yeah, well, until we start the NASH trial I think you can pretty much assume that on the SG&A front and even on the R&D front it should be relatively stable. So until we do start the NASH trial this quarter is probably a good proxy.

[Endri Leno:]

Great. Thank you very much.

[Paul Levesque:]

Thanks, Endri. Endri on your question again, I'd like, just to say that, there's new dynamics going on in HIV as new competitors are launching, but at the same time the market is moving to long acting. We have a long acting compound with Trogarzo. So we're going to make sure that that gets to our physicians and that we see the benefits of prescribing Trogarzo into mix of drugs they need to take or to prescribe to control patients.

[Operator:]

.

[Denis Boucher:]

It seems, as we do not have additional questions from analysts, we will now turn to questions submitted by other participants in writing. The first question that we have is if there is a timeframe that you expect to finalize a partnership in NASH?

[Paul Levesque:]

Well, as we said today, I think it should be clear that we're going to look at all the options that we have. As I said, we are in a position of strength. It's very important that we take a little bit of time now, and somehow we've been slowed down to better accelerate in a few months. This is a long journey, so if we can find a partner that will bring resources, but also capabilities, I think that the slowing down aspect of this will be forgotten very, very fast. So what is more important for us at this time is really to find the ideal partner. And, I think that timeline will take care of itself along the way.

[Denis Boucher:]

Thank you, Paul. Another question here, if we don't find a partner, would we decide to proceed on our own or just give up on it?

[Paul Levesque:]

Well, we're certainly not going to give up. We have a protocol that we've worked absolutely hard to get to where it is now, and that can actually make us enter the market first, second, or third and be extremely relevant in an area of unmet medical need. So we're just, as I said, at this time, it's premature to actually go over and speculate over what would happen. But the partnership is on the table at this time. We've got an advisory company that is helping out, the process has started, the outreach is on, and we'll actually meet these organizations, unveil the data, get them to see what we have seen, get them to actually interact with the advisers, and that are supporting this. And I'm very confident that they're going to want to actually be part of it.

[Denis Boucher:]

Thank you. Before we go on with more questions I'd like to remind participants that you can submit questions in writing on the webcast platform. So if you do have a questions, please don't hesitate to submit it. Now, on the oncology platform, given the timeline presented during the last webcast, can it be assumed that we are in the therapeutic dosage level of the sedaxel .

[Paul Levesque:]

Christian, do you want to provide an update?

[Christian Marsolais:]

Yeah, absolutely. I won't go into specifics of the trial. As you know, we asked to manage this study very confidentially to some extent and make sure that if we announced something that everything will be validated. But at the moment the recruitment is going very well. We're recruiting patients and dose escalating at a rate of three to four weeks. We could do it every three weeks, but by the time that we recruit the following patient ensuring that everything is done and we have the appropriate data from the prior cycle, then it's going -- the increase is every three to four weeks. And we started the first patient as you know, on March 23rd. The studies for these are proceeding well, and we also now have increased the number of sites. We started with first site of Dr. Shaw Gettysburg , and the Anderson has been open for a few weeks, and we now have open two additional sites for recruitment.

[Denis Boucher:]

Thank you Christian. We have another question regarding the oncology platform. Regarding the number of patients that have been dosed so far and if all four centers have enrolled patients?

[Christian Marsolais:]

At the moment all four centers are active and screening patients. At the moment we have two sites that recruit the patients, but in the coming months, the other sites will also add patients to this program.

[Denis Boucher:]

Thank you very much. Regarding our HIV business, with the focus increasingly on oncology, what's to think of the HIV business?

[Paul Levesque:]

Well, the HIV business is that we've got a commercial tour business and we're generating revenue. So we shouldn't be ashamed of generating revenue. It's a good thing. And what is more important to me is even the fact that we are building capabilities for the future. We have an organization in Europe, we have an organization in the U.S., we're calling on doctors, we've got MSLs on the ground. We're doing what midsize, large size pharma are doing. And that's going to be handy in the future, especially as the NASH program is going to unfold. I think there is going to be a long pre-launch phase associated to that, having people on the ground capabilities, having people know inside out what a grid play is all about will be a great asset for ourselves and also for a potential partner. So at the HIV business for now is important and generating revenues, and it allows us to build capabilities for the future.

[Denis Boucher:]

Thank you. Going back to the oncology platform, in terms of efficacy, are there any expectations coming out of our Phase 1?

[Christian Marsolais:]

Yeah, let me start with the objective of this Phase 1 trial, which is really to determine what will be the next month dose of the drug, which will be the dose that will be used in the Phase 2. However, as you know, that study is done in cancer patients that are events and that are resistance to prior treatment. And it's possible that we observed some efficacy, and this is why we think based on the number of cycle and the length of time it takes to confirm if there's a response, because if we see an impact on the tumor shrinkage, we still need to wait two, three months before we can confirm the response. That would be the position to divulge some information in the fourth quarter of 2021.

[Denis Boucher:]

That's good. Thank you. One additional question, in terms of our safety is there, do we expect to see neutropenia at a scheduled doses?

[Christian Marsolais:]

Once again, this is the same thing. It's going to talk about the results or to those that were up exactly at the moment. However, based on the animal data that we have seen and based on the ducks program that we have conducted we certainly do thank that we won’t see neutropenia at the equimolar concentration of docetaxel that we'll be able to dose escalate higher than the dose of docetaxel presently used to treat cancer patients. And once again, we think that this data will firm up and we'll probably be able to announce something in the fourth quarter of 2021.

[Denis Boucher:]

Thank you Christian. I would like to remind participants that if you would like to submit a question in writing, you can do so on our webcast platform and I will give a few seconds for additional questions to come in. There doesn’t seem to be more questions coming in this morning. So at this time we will conclude this morning’s earnings conference call. I would like to thank everyone for being on the call this morning and on behalf of everyone here at Theratechnologies I wish you a very pleasant day. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.