Theratechnologies Inc.
Q1 2022 Earnings Call Transcript

Published: 13 Apr 2022

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Theratechnologies First Quarter Fiscal Year 2022 Earnings Conference Call. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded today, Wednesday April 13, 2022, at 8

[John Mullaly:]

Thank you, and welcome. 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. Additionally, Theratechnologies has also asked Christian Marsolais, Chief Medical Officer, to participate on today’s call, to provide an update in regard to the progress of TH1902, the company’s lead oncology asset. Now, before Paul begins his remarks, I have 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 statement will materialize, and you are cautioned not to place undue reliance on them. Theratechnologies refers current and potential investors to the forward-looking information section in its management discussion and analysis issued this morning available on Sedar at www.sedar.com or on EDGAR at www.sec.gov. Forward-looking statements represent Theratechnologies' expectations as of April 12, 2022. Except as may be required by securities law, 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 call over to Paul.

[Paul Levesque:]

Thanks, John, and good morning to everyone joining the call today. We are well into the new reporting year and off to a great and solid start. As you can tell from our excitement during the year-end call, we have never been more confident in our recent history than where we are today, fully leaning into the advantages of our strategic business model consisting of both a development pipeline and a commercial drug business. On this note, we have asked Christian Marsolais, Theratechnologies' Chief Medical Officer, to join our call today in order to provide a brief but important update on the significance of the new preclinical TH1902 studies as presented at this year's American Association for Cancer Research annual meeting, which took place earlier this week. Our pipeline across oncology, where we are exploring our lead peptide drug conjugate asset, is potentially a promising new technology, representing a broad range of commercial opportunities across solid, refractory, and metastatic cancers for patient with significant unmet needs. Our Phase 1 study investigating TH1902, our lead peptide drug conjugate linked to docetaxel, a well-established and well-characterized cytotoxic agent used in the treatment of cancer, has been progressing well in the past few weeks. Currently, we have completed the 300-milligram per square meter dosing regimen, equivalent to 1.5 times the indicated therapeutic dose of docetaxel alone for three patients with TH1902, and are nearing the conclusion of this stage of the trial, and establishing the recommended Phase 2 dose. We expect to have all six patients of this arm enrolled by the end of April. This is significant, as the targeted delivery of TH1902, along with the rapid neutralization of the drug of cancer cells, could enable the accumulation of 7.5 to 10 times more cytotoxic agent within cancer cells, as compared to the administration of docetaxel alone. This increased tumor penetration significantly and specifically in cancer cells, is a key differentiator of TH1902 as a therapeutic treatment for cancers. Now, if the absence of dose-limiting toxicity or DLT is confirmed at 300-milligram per square meter, this dose will become the recommended Phase 2 dose. As previously discussed, once the recommended Phase 2 dose is established, initiation of enrollment of the larger open label basket trial will begin immediately, which can potentially start as early as the end of May. The basket trial will further assess the safety and tolerability of TH1902. In addition, we are confident in the design of the basket trial, as it should enable us to show preliminary efficacy in a number of solid tumors in the second half of 2022, given that we have selected cancer types where Sortilin expression is high. An amendment to the Phase 1 protocol was submitted to the FDA to include the following solid tumor types

[Christian Marsolais:]

Thank you, Paul. Hello and good morning, everyone. Theratechnologies attended the AACR 2022 annual meeting, and we wanted to share with you some of the findings of the three posters that were presented. It is our belief that the SORT1 receptor is an ideal candidate for trafficking peptide drug conjugates, or PDCs, specifically into cancer cells. As background, Sortilin receptor expression is both common and high across many known tumor types, but almost absent in healthy tissues, making it an attractive target for cancer drug development. Sortilin expression, interestingly, also increases as a function of tumor grade one to four, and is typically associated with poor prognosis and decreased survival rates in a number of cancers. Our SORT1 positive technology is an oncology platform consisting of normal peptides targeting the SORT1 receptor. We are currently investigating the exploitation of the SORT1 function with various combinations of PDCs, which lead to receptor-mediated trafficking of well-established anti-cancer agents, for example, docetaxel, doxorubicin, and SN-38, that are attached to the novel proprietary peptide. This approach could potentially decrease the off-target authenticator drugs like cytotoxic, and increase their efficacy by increasing their concentration, specifically in cancer cells. The key aspect of this technology is the ability to traffic payloads directly into cancer cells, where the active PDC payload is released from the peptide to exert its cytotoxic effect, specifically inside the cancer cell, sparing normal cells from toxicity. This is accomplished by the exploitation of the search in the receptor native function as a transmembrane scavenger receptor involved in the import-export of large peptides into the cell via the endosomal lysosomal pathway, a cellular shuttle system. The platform technology allows for versatile and flexible conjugation strategies in order to achieve different ratios of anti-cancer drugs to peptide. These exciting new pre-clinical data presented at AACR, demonstrate the significant potential in pre-clinical studies of our platform technology as a treatment for Sortilin expressing cancers. Additionally, the promise of Theratechnologies’ Sortilin-positive technology platform, suggests that it can be effective in targeting and trafficking different anti-cancer payloads. As part of our preclinical studies, we investigated cancer stem-like cells. In humans, cancer stem cells are an important target in treatment of cancer, as they contribute to the carcinogenesis of cancer, and are typically resistant to conventional treatments, such as chemotherapy and radiotherapy. Moreover, SORT1 is also indicated in the formation of vasculogenic mimicry structures known to feed the tumor as they grow, and are also associated with cancer resistance to standard treatments. From the human cancer stem-like cell study bearing the CD-133, a non-cancer stem cell marker, we demonstrated that TH1902 peptide conjugate, moves into those tumor cells via the SORT1 receptor native function. Additionally, once inside of the tumor, TH1902 induces cell death of these cancer stem-like cells more effectively than the cytotoxic agent alone in both triple negative breast and ovaria cancers. These results are very impressive, as cancer stem cells are known to be resistant to most anti-cancer treatment. In a second poster, we have presented the results of the combination of TH1902 with carboplatin as compared to paclitaxel or docetaxel- carboplatin combinations in ovarian cancer. The results clearly demonstrated that TH1902 alone is better than some of the gold standard treatment for ovarian cancer, and that the combination of TH1902 and carboplatin, can further improve the efficacy of ovarian cancer treatment. This is the first time we showed that TH1902 can be used in a combination treatment. These results certainly opened the door for treating patients in earlier lines of cancer treatment. Our third poster presented results showing TH1902 demonstrated better and sustained efficacy at doses equivalent to the maximum tolerated dose of docetaxel in human and murine melanoma subcutaneous xenograft models, and that the mice prolonged survival rate increased 263% in mice treated with TH1902. We were also able to demonstrate that TH1902 inhibited the formation of lung metastasis in the B16F-10 model across different TH1902 regimens. These insightful new results further confirm that our SORT1 positive technology, is a novel therapeutic approach to delivery of established anti-cancer drugs to tumor cells, thereby optimizing efficacy, limiting toxicity, and improving the therapeutic window of the cytotoxic agent. It also shows that this platform could be effective in some resistant cancers, as well as against the development of metastasis. To summarize, the data that was presented at AACR is part of the key differentiators of novel TCH1902. First, in preclinical work, we have observed enhanced effectiveness of TH1902 versus docetaxel alone, especially in hard-to-treat refractory cancer. Second, the capacity of TH1902 to inhibit formation of BM and growth of cancer stem-like cells, can in fact be the mechanism of action at play behind dose observation. And lastly, leveraging SORT1 receptor could allow TH1902 to target cancer cells with a 7.5 to tenfold concentration of the cytotoxic agent in the cancer cells, while sparing normal cells, as those are known to show little or no SORT1 expressions. Thank you for your time, everyone. I will now pass the call to Philippe, Theratechnologies Chief Financial Officer.

[Philippe Dubuc:]

Thank you, Christian, for reviewing the data that we presented this week at AACR, and good morning, everyone. So, I'll go through the financials before I turn the call over to the operator for the Q&A session consolidated revenues for the three-month period ended February 28, 2022, was $18.6 million compared to $15.4 million for the same year-ago period, representing an increase of 20%. For the first quarter of fiscal 2022, net sales of EGRIFTA SV reached $11.7 million compared to $8.7 million in Q1 of last year, representing an increase of 35%, due to the combined effect of a higher number of units sold, and a higher net selling price. In the first quarter of fiscal ‘22, Trogarzo net sales amounted to $6.9 million compared to $6.7 million last year, representing an increase of 1.6%. while unit sales were higher in both North America and Europe. Revenue growth was impacted by growth - by greater rebates, mostly in Europe. In Q1 2022, cost of goods sold was $4.9 million compared to $4.2 million in the same quarter last year. The increase in cost of goods sold was mainly due to higher sales. The cost of sales also includes amortization of $1.2 million related to the repurchase of EGRIFTA commercialization rights. And this figure is the same as it was in Q1 2021. R&D expenses amounted to $8 million for the three-month period ended February 28, 2022, compared to $4.9 million for the same year-ago period. This increase was largely due to the higher spending in our oncology programs, increased spending in medical and patient education, as well as increased medical affairs spending in Europe. Selling expenses amounted to $7.8 million for Q1 ‘22, compared to $6.2 million for the same period last year, reflecting the addition of key hires in North America and Europe, as well as greater commercialization activities in both territories. The amortization of the intangible asset value for the EGRIFTA and Trogarzo commercialization rights, is also included in selling and market development expenses. As such, we recorded an expense of $785,000 in Q2, as well as in Q1 of last year, in Q1 ‘22, as well as in Q1 of last year. G&A expenses amounted to $4.4 million for the first quarter, compared to $3.5 million for the first quarter of last year. The increase in G&A expenses was mainly associated with an overall increase in business activities and increased activity in Europe. Net finance costs for Q1 2022 were stable at $1.3 million. Net finance costs in the first quarter of ‘22 and ’21, included interest of $802,000 on the senior convertible notes issued in June 2018. Net finance costs also include accretion expense of $517,000 in the first quarter of ‘22, compared to $581,000 in the comparable period in 2021. Given the above increase in revenues and greater expenses - greater increases in expense for the three-month period ended February 28, 2022, net loss for the period was $9 million compared to $5.9 million for the same period last year. In the first quarter of ’22, operating activities used $4.1 million as compared to $1.9 million in the comparable period of fiscal 2021, primarily due to the increased loss in 2022. In Q1 2022, changes in operating assets and liabilities had a positive impact on cashflow of $69,000 versus a negative impact of $3.3 million in Q1 of last year. This year's changes included a negative impact from higher accounts receivable and from decreasing accounts payable. And these were offset by positive impacts from lower inventories and lower prepaid expenses and deposits. So, we ended the first quarter of fiscal 2022 with $34.3 million in cash, bonds, and money market funds. The second quarter of 2022 is off to a good start. And as Paul just mentioned, we're pleased to confirm the guidance for fiscal 22, expecting revenues between $79 million and $84 million. So, with that, Paul will come back with final comments, but first, we'll open the call to take your questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question coming from the line of Andre Uddin with Mackie Research Capital. Your line is open.

[Andre Uddin:]

Okay. Thank you, operator. Good morning, Paul, Philippe, and Christian. Just looking at Europe right now, where is your main commercial focus in terms of countries? And also, how many reps do you have there? And sort of what are your plans for those smaller European countries? Thank you.

[Paul Levesque:]

Well, thank you for the question. So, as you know, in Europe, not much can happen before you obtain pricing reimbursement. That is an endeavor - that is a country-by-country endeavor. We've been in discussion with many jurisdictions. We have been able to establish a fairly good price in many small European countries, but in the major countries, aside from Italy, where we negotiated what we believe an acceptable price, we're still in negotiation. And we had to reject the offering from the German government because we could not accept the price that they wanted to put forward for a drug that we consider a very, very, very innovative medicine, and what they were offering would not match that positioning. But it's a country-by-country negotiation. We’re currently in the midst of the negotiation in France. Things are evolving. We believe that it's going to slow down as France is going through the first round, the second round of their election process. So, April will probably not be decisive. But France is an important country for us because the pool of patients is significant. So, we will be updating the market as the story is unfolding. And meanwhile, we have resources in Europe that are very important for global activities and for the preparation of our clinical programs in oncology. So, we have a presence in Europe. We're committed to continuing having a presence in Europe, and we're trying to do our best at this time to pull pricing that is matching the innovative nature of Trogarzo.

[Andre Uddin:]

Okay that's useful. You presented some nice preclinical data of TH1902 at AACR. Just was wondering if it's possible if we're going to see any data at ASCO in June. Thank you.

[Paul Levesque:]

Christian?

[Christian Marsolais:]

Yes. Hello, Andre. Thanks for the question. Andre, as we move forward with the first in-human at the moment, as it was mentioned, we have three patients that received 300. We need to go to the following three patients at 300. And the ASCO is in June. The deadline for submission of the abstract were earlier on this year. Then we won't have any communication at ASCO, but we’re hoping, as Paul mentioned, that towards the end of this year, that we should have an update on the potential activity of the drug in patients.

[Andre Uddin:]

Okay. That's great. Thank you.

[Paul Levesque:]

Thanks for your question. Obviously, the reason why we're putting an emphasis on what was just presented in New Orleans this week is because we believe that this is very, very significant. This is preclinical data, but it provides reassurance for its mechanism of action, and we find it extremely innovative. And as we move forward with the basket trial, we'll see what is at play, but I think that what Christian presented today is absolutely exciting. Next question.

[Operator:]

And our next question coming from the line of Stephen Kwai with National Bank. Your line is open.

[Stephen Kwai:]

Hey, guys, good morning. Thanks for taking my question. I'm just calling in for Endri, and actually most of my questions have been answered between the last questions and the opening remarks. I just had one. So, given there have been some shutdowns in China, is this at all impacting your negotiations and partnership strategy? Thanks.

[Paul Levesque:]

No, it is not. It's ongoing, and quite frankly, you know how negotiation goes, is that you have a set of companies that are moving faster than others. You don't want to conclude too fast before you let other companies coming in. So, we have a nice, I would say, crew of, or mix of biotechs and large pharma that are showing interest. And quite frankly, as we get closer to early sign of efficacy, and we keep saying that this is what we're going to see soon, or as soon as early on into the basket trial, I think the interest is going to increase. So, quite frankly, getting the conversation going, getting under CDA with many of them, will actually be conducive to getting the right partner and the right valuation with this great asset for greater China. So, things are moving as per the plan when it comes to that. Philippe, do you want to add anything?

[Philippe Dubuc:]

Well, no, but the only thing is that we haven't really been getting the feeling from pharmaceutical or biotech companies in China that there's nothing that’s more than business as usual. So, there hasn't really been any impediments to talking to them or anything. It's business as usual for them.

[Stephen Kwai:]

Okay, great. Yes. Thanks. That's all my questions.

[Philippe Dubuc:]

Okay. So, we have some questions on the - from the webcast. So, this is a question for Christian. What elements from the in vivo and in vitro research you have seen in humans thus far that would lead you to believe that scientific view of the concept around Sortilin as a target, its function, and how is that playing out in a manner consistent with your previous discoveries?

[Christian Marsolais:]

Yes. Thank you for the question. It's a bit premature to talk about the human data, but in terms of what we've seen in vitro and in vivo, it's always very impressive. It's always very consistent. We have very similar efficacy using cell lines are expressing the Sortilin receptor. And what we see is really a significant increase of the concentration of the cytotoxic inside the cancer cell versus the normal cells. And doses that are similar to the dose used with docetaxel in human, the safety profile is very good. And maybe like in terms of efficacy, it's early, but for safety, what we have seen thus far in human is more or less similar than what we were expected based on the animal study. 420, as we mentioned, we've seen some toxicity, which is normal because this is about two times the dose of docetaxel. And that's the reason why now we have decreased to 300. There's a number of patients that received 300 and recently three patients where we haven't seen any DLT in the first cycle. And I would like to remind you that 300 milligrams per meter square of TH1902 is the equivalent to 1.5 times the dose of docetaxel, and we don't see DLT, and that's something impressive. In addition, based on what we have seen in the animal, we have shown before that the concentration of docetaxel in the cancer cells when administered with TH1902, is four or five times higher. Therefore, if we can be at 1.5 times the dose of docetaxel, the ratio or the accumulation of the cytotoxic inside the cancer cell should be between 7.5 and 10 times. And the program is moving well. We're expecting good results in the near future.

[Philippe Dubuc:]

Next question, regarding TH1902. Is there a window of opportunity for revenue from TH1902 that may come with any accelerated approval available with the received fast track designation?

[Paul Levesque:]

So, thank you for the question. This is a good question and an interesting one. Let me try to address it with an activity that we conducted recently that was really, really productive. We orchestrated an oncology strategic session, and we had a few individuals within the company that attended. And we had Mace Rothenberg, our Advisor. We had Dr. Béliveau that knows obviously the platform extremely well. And we had Joe Arena, Our Scientific Board Member. And we reviewed all the data. We reviewed where we are with TH1902, and we reviewed the place that TH1902 can play within the arsenal and the treatment guidelines of different indications where we know the SORT1 expression is high. And quite frankly, what we want to do is exactly what your question is about, which is, can we actually, as soon as we see compelling results, early sign of efficacy for one of these arms, can we turn to the agency with this fast-track designation and say, can we design a larger trial so that it could become the pivotal trial to an indication? That is not obviously a done deal. It's not something that we can forcefully predict at this time, but this is the plan. The plan will be to actually accelerate at least one indication the fastest possible way and keep developing applications afterwards, because what you have to understand is that treatment guidelines in oncology rules, and we need to squeeze in somewhere in the treatment guidelines related to cancer therapy for one indication or two indications, but it's one tumor type at a time. Christian, do you want to provide additional color on this?

[Christian Marsolais:]

Well, no. That's the plan so far. And again, there are many examples in recent years where drugs were approved with a limited number of patients through the accelerated path with the FDA, that again, if we see signs of efficacy in some of those solid tumors, we will meet with the FDA, and we will try to obtain like a design with a limited number of patients to get to the market as fast as possible.

[Philippe Dubuc:]

There's a few questions on the - just a clarification around where exactly we are in the enrollment of the six patients on the - at the 300-milligram dose. Can you just maybe clarify where we are exactly and when we expect that six patient to be in?

[Christian Marsolais:]

Yes. So, far, as Paul mentioned before, our three patients now that were treated at 300. Once we lowered the dose out through the treatment of 420, we did not observe any DLT within the first cycle. The other patients are being screened, and we do think that those three patients will be treated in April. As you know, it's sometimes difficult because patients are advanced, but we do think that those three patients will be treated in April. Then three weeks after that, the cycle will be completed. And if there are no DLT, and based on the experience that we have with the drug so far, we're confident that there should not be any DLT at 300, we will be ready to initiate the basket trial, which should be towards the end of May - of this certified question.

[Philippe Dubuc:]

Another question. Can you please clarify whether you're planning for the NASH program to progress, or how you are planning for the NASH program to progress?

[Paul Levesque:]

So, let me summarize the elements here, but I think I touched on this in the speech today. We're still awaiting some feedback from the agency when it comes down to the amended protocol that we presented. So, as you would recall, we want to have a formal interim analysis on hard point data. And this amendment was submitted and within the next few weeks, we should have the feedback from the agency. We said that we wanted to continue with partnership. So, we are also in conversation with different companies on partnership, and we're looking in parallel at how we could finance this in a non-dilutive way so then we can start and execute the front part of that trial all the way to the interim analysis. We also need to start that trial with the F8 formulation. That is a prerequisite. We never wanted to carry on that trial with the F4. And you will recall when we started our plan, we said that there were three things that were extremely important for us to aspire to getting a decent market share, once the market will be constituted in years to come. First one was to have the right IP protection. And in this case, the IP protection is linked to two things. It's linked to the F8 formulations IP that we have in Europe and in North America, but also the use patent that we have linking the use of tesamorelin and NASH in NAFLD. So, that's important, and that doesn't change, but that means that we need to get going with the F8 formulation. The second part was to continue to have wide support for the mechanism of action and the science behind tesamorelin, and that's exactly what we've done, and there's nothing wrong with that. We have brothered, if anything, our support from KOL of tesamorelin, having a chance to win in NASH. And the last part was to say, once we actually complete the trial and have an indication, we need to ensure that we have a mode of demonstration that will be competitive. So, we keep on working on getting a pen or a method of administration that will be competitive. That's very, very important. So, now if you put this all together, again, and I want to summarize, the amended protocol now, we're still waiting feedback from the agency, the financing and the partnership, that is still ongoing, but what is stalling us now moving forward is this issue related to the bacteriostatic water and this global shortage. And that is serious stuff, and we no longer have visibility, unfortunately. But as I included in my speech, again, I think that some hospitals now are on the priority list, and maybe there are some manufacturing batches that are being released slowly but surely. And at one point, we'll be able to source that. We'll be able to manufacture ourselves, and then we'll put it all together with all the other elements to decide what's going to be the plan forward and the timeline associated to NASH. Philippe, you want to say a word of financing?

[Philippe Dubuc:]

Yes. Just, well, there's a few questions also on the mention of the convertible debenture that is still over a year away in terms of maturity, but we are starting to address it. And that blends in with the NASH financing as well. We mentioned a number of times before that there is quite a bit of interest for non-dilutive financing. And so, everything is taken in consideration at the same time here. Obviously, if someone were to come in on a non-dilutive basis, they will want the convert to be addressed as well. So, it's one whole package. So, that's it for the questions, Paul. So, you can summarize then.

[Paul Levesque:]

Thanks, Philippe, and Christian, and thank you, everyone, for joining our update call today. We have confirmed early on in this fiscal year that the momentum that was built in 2021, continues to sustain the growth of our commercial business. In particular, the reported 35% sales for EGRIFTA SV this quarter, as well as the blended commercial sales growth of 20%, are very good signs for performance through to the remainder of the fiscal year. In conclusion, we are greatly encouraged by the data that Christian has reviewed on the call today. On the scientific side, the data that was presented at AACR, is seen by Theratechnologies as key differentiators of novel TH1902, as a promising new therapy in solid refractory and metastatic cancers. Firstly, in preclinical work, we have observed enhanced effectiveness of TH1902 versus docetaxel alone, especially in hard-to-treat refractory cancers. Second, the capacity of TH1902 to inhibit formation of vasculogenic mimicry and growth of cancer stem-like cells, can in fact be the mechanism of action at play behind those observations. And lastly, leveraging SORT1 receptors allow TH1902 to target cancer cells with a 7.5 to tenfold concentration of the cytotoxic agent, while sparing activities on normal cells, as those are known to show little to no SORT1 expression. Additionally, it is unfortunate that the supply chain of the necessary F8 manufacturing component has delayed development in our NASH program in the near-term. However, this delay has provided us with the opportunity to remain completely focused on the brink of a very large near-term milestones, including the reporting of early signs of efficacy for TH1902 from the basket trial in the second half of 2022. We will also be able to provide our upmost attention in fully onboarding of our internal sales force, which will contribute to our deliverance of guidance for the year. Following these two significant upcoming milestones, we are taking the utmost care in reviewing our NASH development strategy, including the seeking out of the right partners with necessary execution experience to move the program forward, alternative financing options, and optimized mode of registration to ensure patient initiation and adherence to our new formulation. For this, we hope that we have been able to share our optimism for 2022 and our progress to date with everyone today, and as we continue to move forward with both our commercial aspiration and expectations to meet forecasted revenue guidance for the full year, as we advance our pipeline across the clinic, while navigating the necessary regulatory channels required to commercialize an advanced stage product with a markedly improved formulation. Have a great day, and I look forward to the next update call. Thanks for attending,

[Operator:]

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.