Theratechnologies Inc.
Q2 2023 Earnings Call Transcript

Published: 12 Jul 2023

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Theratechnologies' Second Quarter and Half Year Fiscal 2023 Earnings Call. We would like to remind everyone that all figures on this call are quoted in U.S. dollars. [Operator Instructions] I would like to remind everyone that today's conference call is being recorded today, Wednesday, July 12, 2023 at 08

[John Mullaly:]

Thank you, operator, and good morning, everyone. On the call today will be Theratechnologies' President and Chief Executive Officer, Mr. Paul Levesque; and Senior Vice President and Chief Financial Officer, Mr. Philippe Dubuc. During the Q&A session, we'll be joined by Christian Marsolais, Senior Vice President and Chief Medical Officer; and Mr. John Leasure, the Company's Global Commercial Officer. Before we begin, I'd like to remind everyone that remarks today contain forward-looking statements regarding the Company's current and future plans, expectations and intentions with respect to future events. Forward-looking statements are based on assumptions, and there are risks that results obtained by Theratechnologies may differ materially from those statements. As such, the Company cannot guarantee any forward-looking statements will materialize, and you are cautioned not to place undue reliance on them. The Company refers current and potential investors to the forward-looking information section of Theratechnologies' Management Discussion and Analysis issued in this morning and available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Forward-looking statements represent Theratechnologies' expectations as of this morning, July 12, 2023. Additionally, today, the Company is using the term adjusted EBITDA, which is not a financial measure under International Financial Reporting Standards, IFRS, or U.S. Generally Accepted Accounting Principles, U.S. GAAP. Adjusted EBITDA excludes the effects of items that primarily reflect the impact of long-term investments and financing decisions rather than the results of day-to-day operations. Theratechnologies believes that this measure can be a useful indicator of its operational performance and financial condition from one period to another. The Company uses this non-IFRS measure to make financial, strategic and operating decisions. Reconciliation of adjusted EBITDA to net loss is found in our MD&A issued this morning, available on SEDAR and EDGAR at the web addresses mentioned earlier. With that, I would now like to turn the conference over to Theratechnologies' President and CEO, Paul Levesque.

[Paul Levesque:]

Thank you, John, and good morning to everyone on the call today. As we are well past the halfway mark of the calendar year, we remain prudent in managing our commercial goals and oncology pipeline to align with our fundamental objectives. Earlier this year, we committed to a recalibration of the business that would see us focus on the commercial enterprise and enable us to become adjusted EBITDA positive. Today, I will be sharing a number of key actions in support of this approach, which will propel us towards profitability, while advancing our promising oncology program. I hope that everyone had the opportunity to join our oncology update call on our lead PDC candidate Sudocetaxel Zendusortide which took place last month. The call followed two significant milestones in early June

[Philippe Dubuc:]

Thank you Paul, good morning, everyone. Consolidated revenue for the three month period ended May 31, 2023 was $17.5 million compared to $19.3 million for the same year-ago period, representing a decrease of 8.9% year-over-year. For the second quarter of fiscal 2023, net sales of EGRIFTA SV reached $10.9 million compared to $11.4 million in Q2 of last year, representing a decrease of roughly 5%. The decrease is mainly the result of a draw down these inventories at one of our large specialty pharmacies. This pharmacy had built up larger than usual inventories in the fourth quarter of 2022 in anticipation of stronger demand and higher than usual price increases. Following discussions with this Group, we have determined that the situation is largely resolved and sales in the months of May and June 2023 are back to normal levels. Net sales of EGRIFTA SV were also impacted by larger than usual rebates to government payers. These situations also impacted net sales for the six month period ended May 31, which amounted to $23.6 million, compared to $23.1 million in the same period in 2022, representing growth of 1.9%. In the second quarter of fiscal 2023, Trogarzo net sales amounted to $6.7 million as compared to $7.9 million for the same quarter of 2022, representing a decrease of 14.7%. Lower sales of Trogarzo were result of the inventory adjustments as far. And further, inventory drawdowns at another specialty pharmacy with which we renegotiated contract terms, resulting in a lowering of their overall inventory levels. These new contract terms will be beneficial to Theratechnologies in the future, resulting in recurring annual savings. Net sales of Trogarzo were also impacted by greater than anticipated rebates, the government payers. Finally, the Trogarzo net sales decrease is also attributable to a lesser degree on our decision to stop commercializing the product in Europe in 2022. All in all, while sales in the first half of 2023 were below our expectations, it does not affect our goal to become adjusted EBITDA-positive by year-end as we will implement additional cost saving measures immediately as discussed by Paul, a few moments ago. In the period, cost of sales decreased to $4.9 million from $7.8 million in the same quarter of fiscal 2022. The decrease in cost of goods sold was mainly due to a charge last year of $2.3 million arising from the non-production of scheduled batches of EGRIFTA that were cancelled due to the planned transition to the F8 formulation of tesamorelin. No such charge was recorded in 2023. Cost of sales is also lower than last year when it included an amortization charge of $1.2 million in connection with the settlement of the repurchase of EGRIFTA rates from Serono in 2018. This asset was fully amortized during the first half of last year. And thus, this charge was zero in the second quarter of fiscal 2023. R&D expenses amounted to $10.4 million in the three month period ended May 31 compared to $11.1 million for the same year ago period. R&D expenses this year include a provision of $3 million related to Sudocetaxel Zendusortide material, which could expire before we are able to use it in our clinical program. Excluding this provision, R&D expenses are down significantly in the second quarter of 2023 compared to last year, mostly as a result of lower spending on our oncology program. Selling expenses decreased to $6.5 million for the second quarter of 2023 compared to $15.4 million for the same three month period last year for a decrease of close to $9 million. The decrease is due in large part to a charge of $6.4 million taken last year related to the accelerated amortization of the Trogarzo commercialization rights for the European territory following our decision to cease commercialization activities in that territory during that quarter. This also led to decreased overall spending in commercialization activities. Excluding this charge, selling expenses decreased from $9 million to $6.5 million this year, or a decrease of 28%. G&A expenses in the second quarter of 2023 amounted to $3.7 million as compared to $4.8 million for the second quarter of 2022 or a 23% decrease. The decrease in G&A is largely due to our decision to terminate the commercialization activities of Trogarzo in Europe during the second quarter of 2022. Net finance costs increased to $2 million in Q2 2023 compared to $1.6 million in Q2 of last year. The increase is mostly related to the interest on the Marathon Credit Facility. Adjusted EBITDA for the second quarter of 2023 was negative $6.1 million versus negative $11.7 million in the same period last year. While this number is a significant improvement over last year, it's important to note that adjusted EBITDA was affected by a $3 million charge related to Sudocetaxel Zendusortide as I've just described. While sales were lower than anticipated Q2, R&D selling and G&A spending during the quarter were all significantly lower than last year. This is even before the additional spending cuts discussed by Paul, which is why we are confident in our ability to become adjusted EBITDA positive by year end. We will continue to monitor expenses closely, as we have done since the beginning of the year and we'll continue to adjust, while closely tracking revenues. We ended the second quarter of fiscal 2023 with $25.4 million cash, bonds and money market funds. Operations used $3.6 million in cash in the second quarter compared to $1 million in the second quarter of last year and variations in operating assets and liabilities provided positive cash flow of $4.6 million mostly due to decreases in inventories and prepaid expenses and an increase in accounts payable. This was offset by an increase in accounts receivable. With that, we will be back for final comments but first, we will now open the call to take your questions.

[Operator:]

Yes, thank you. At this time we will begin the question-and-answer session. [Operator Instructions] And today's first question comes from Louise Chen with Cantor.

[Louise Chen:]

I have two questions. Interested in learning more about your cost savings measures. Could you provide more color on your anticipated expense for R&D and SG&A for the rest of the year? Thank you.

[Paul Levesque:]

Thank you for your questions. So Philippe, you want to provide color on R&D spending for the rest of the year. As we said, we will be implementing cuts and expense reduction in R&D to right-size that function, it will have an immediate impact. And therefore, savings will be reported through the last part of this year, but more expense reduction will be implemented as per the plan as we already had going for '24, Philippe, do you want to provide additional color?

[Philippe Dubuc:]

Yes, well, on the selling and the G&A, I think Q2 and Q1 are a good proxy for the remainder of the year. Through expense reductions for this year mostly on the R&D side, we've always - we've been mentioning since the beginning of the year that we have a lot of projects that we're in the earlier part of the year as such as the bacterial static water that we were, that we were manufacturing, the intramuscular version of Trogarzo. So these expenses should be behind us more and more over the year. So look for further reductions in R&D in the latter part of this year and again it into 2024 as well.

[Louise Chen:]

Got it.

[Paul Levesque:]

Thank you for the question.

[Operator:]

Thank you. And the next question comes from [indiscernible] Canaccord Genuity.

[Unidentified Analyst:]

Good morning, and thank you. So can you quantify what was the impact on revenue in 2022 of the buildup in inventory? You also gave us some metrics on new prescription trends. Do you have the same - the comparable metrics for total prescription growth. And then finally, towards the end you mentioned characteristics. You mentioned potentially folding in other products into the commercial portfolio. So what characteristics are you looking for in a potential bolt-on acquisition and how would you think about financing that. Thank you.

[Paul Levesque:]

Thank you for your question. So I'm going to answer the latter part of your intervention and John will focus on top line sales and prescription data as for your question. We firmly believe that we have built capabilities that can actually be very useful for ourselves. If you were to identify a product that we can actually bolt-on to our platform but when I call - when I say platform I mean, all of these infrastructure in sales that we currently have. So, as previously said, it could be in HIV, could be in HIV adjacent but it could also be in a different category, something small, something that could be in the field of metabolic disorder that would allow us to actually deploy resources in a similar way that we're doing at currently for the HIV products we have, and we know and we're already in discussion but many companies, they are assets out there that are deprioritized by some companies and I think that if we were to be able to make one of those acquisitions, it could be immediately accretive. Our journey towards producing EBITDA-positive data. So, John I will turn to you now for explaining a little bit the top line in last six months, but also the prescription data as you see it now.

[John Leasure:]

Yes, we have very strong new prescription growth as I think we've highlighted EGRIFTA growth was 28%. And new prescriptions and that both with Trogarzo and EGRIFTA, we're exceeding our new prescription estimates that we set out at the beginning of the year. The challenges was highlighted early later last year the second half of last year, we saw a little bit softer enrollments and I think that's translated into a little bit of build-up in inventory. And then on top of that we were looking to improve our gross-to-net as well as decrease returns and we changed some of our contracts that resulted in about [0.75] million annual savings, but had the negative impact of some inventory drawdowns. So those are the two key events for last year. And then this year, again very strong prescription growth.

[Unidentified Analyst:]

Thank you, John.

[Paul Levesque:]

Thanks for your question, next question.

[Operator:]

Thank you. And your next question comes from Justin Walsh with JonesTrading.

[Justin Walsh:]

Thank you for taking the question. I wanted to ask about the estimated size of the patient population as you're narrowing development of Sudocetaxel Zendusortide. Approximately how many ovarian cancer patients do you think could benefit in the U.S. and other major markets and I also want to clarify if patients with endometrial cancer will be included. Thank you.

[Paul Levesque:]

Thanks Justin for your question. So I turn to Christian first for what type of ovarian cancer and will we have endometrial cancer patients included and John you might speak to market size when it comes down to the indication that we can have at the end of this journey. Christian?

[Christian Marsolais:]

Yes hi, Justin and thank you for the questions. We're focusing on the largest population, ovarian cancer, which is the high grade serous ovarian cancer that's will be enrolled in this study. And this is based on the data that we have seen in our earlier results showing efficacy in ovarian cancer patients. At the moment, we will be focusing on like a 2 stage study, which will be a total of 16 ovarian cancer patients. But after that, if we see signs of efficacy, we can probably enroll additional patients in either endometrial cancer or TNBC. That's the first time that work.

[Justin Walsh:]

John, do you have anything to add?

[John Leasure:]

Well I think the market size that Christian outlined the sales volume there really depend on what the - what we see in terms of efficacy, but we definitely, we've done some work there and we think there's a place for the drug but clearly in later lines of therapy. As you know, there's a lot of unmet need in ovarian cancer, so we think there substantial opportunity there for an early stage indication.

[Christian Marsolais:]

Justin, thank you for your question. As you know we decided to focus on one indication where we believe we have the highest probability of success in the short term. Now the short one receptor is highly expressed in many other solid tumors. So we think that we had applications way beyond ovarian cancer but in a way to actually win and win rapidly and in a way to manage cost, the best possible way, we decided to take an approach that is different from the approach that we had taken the first time around and be extremely laser focus on one cancer type where we know that we recorded already signals of efficacy. So first, this one then I believe that partnering with other companies that have aspiration in bringing new treatment to the marketplace will be something feasible as soon as we reported back-to-back efficacy data in the first part of 2024, and I can say also that there is a great deal of interest we're conjugating different technology that can actually be broad to the cancer cells through the SORT1 receptor as well. So there's many things going on and again ovarian cancer is the card that we're playing at the moment and we absolutely believe based on what we have been told by the experts in the category that we've got enough going on and going for us to win in the marketplace and get an approval with that indication and get going with more. Thanks for your question, Justin.

[Justin Walsh:]

Got it, thank you.

[Operator:]

Thank you. And the next question comes from Andre Uddin with Research Capital.

[Andre Uddin:]

Thanks. Hi Paul, Philippe, Christian, and John. Just in terms of your business development activities for out-licensing, what does the potential NASH partner need to see is it the F, is it the F8 formulation does that need to be approved and can you just talk a little bit how discussions are going there? Thanks.

[Paul Levesque:]

Well, thanks, Andre for the question. You know, we haven't updated the - our shoulders this morning on this, because there is nothing new to say, but this is a very dynamic market, the NASH market is very dynamic. Some companies keep on failing, some companies now see this as a true potential. I think that we have something to offer that is further down its development based on the fact that the drug has shown. It's a safety profile over the over the years. Having the F8 formulation obviously will be a big plus but we always intended to start the Phase 3 clinical program that the F8 formulation anyway. So whenever we're approaching with different companies it is with the F8, it's going to be coming with a much higher concentrations, lower volume of administration with a potential to package this in a pan. So what is missing is not much, quite frankly, it's just to actually find companies that once actually invest type of money that is needed to team up with us, so we keep on being active. We absolutely believe that Madrigal data and [Acura's] accrual data reading positive will be sparking additional interest for our program and we will report back to our shoulders if there are any new development is coming up. Christian, do you want to add anything to -- ?

[Christian Marsolais:]

Yes, the only thing I agree based on your questions for the use of DSA and as we have mentioned before, we already completed the bio equivalence studies showing bio equivalents between the F8 and F1 the short formulation that was on the market and it is ready to use in a clinical trial, even if it's not yet approved by the FDA. On the other end, the F8 file is moving well and we are on target as this was mentioned by Paul for submission in September this year.

[Andre Uddin:]

That's useful. And just looking at Canada, is there an opportunity to out-license Trogarzo and EGRIFTA?

[Paul Levesque:]

It's a good question Andre. And I looked into with before myself upon arrival, I think that there could be an interest but quite frankly, a bit like Europe, it could become a distraction. Getting reimbursement in Canada province-by-province is very, very tedious and although there would be certainly some potential for these two medicines by focusing our activities that we have done in, in the U.S. I think this is where our time and attention and spending is best deployed trying to foster additional growth in the U.S. market. And having our own capabilities now, we're working to be more ambitious and that is why we've been on the outlook for accretive deals and we're not going to rest before we basically find opportunities done and completed.

[Andre Uddin:]

Okay, that's great. And just could you also just discuss the Trogarzo rebate situation, that's a little bit a little bit more detail, what happened there.

[Paul Levesque:]

Sure, Philippe do you want to provide more insights on the different rebates in the front part for maybe the gross-to-net factor.

[Philippe Dubuc:]

Yes, there's a few factors that we don't really control is the patient mix Andre, so I think in Q2, the patient mix was not as favorable. So we give rebates to Medicaid. We don't give rebates to Medicare and commercial payers. So if the patient mix changes more towards Medicaid that affects our rebates. We also some of the government payers aren't really good at providing us with invoicing and sometimes we'll get a bunch of invoices from previous quarters. So that doesn't really help us. We try to have as much provisions as we can. But in this quarter, we got more than we expected, so that should be a one-time event going forward, we expect that to come back to cause.

[Andre Uddin:]

Thanks. And then just one last question, if you could just provide a little bit of an update on the IM formulation of Trogarzo that would be great.

[Paul Levesque:]

IM formulation Christian.

[Christian Marsolais:]

Yes, IM formulation the analysis are ongoing at the moment and for submission before the end of the year.

[Andre Uddin:]

Okay, that's great. Thank you.

[Paul Levesque:]

Thanks, Andrew.

[Operator:]

Thank you. [Operator Instructions] And the next question comes from Endri Leno with National Bank.

[Endri Leno:]

Hi, good morning. Thanks for taking my questions. The first one is a bit of a follow-up on the question that was asked priorly. But when you're looking at adding new assets, can you talk a little bit on how do you plan to fund this new assets. I mean especially in the context of the Liquidity Breach. Are the liquidity covenant breach on the net line. Thanks.

[Paul Levesque:]

Thank you. Yes, let me say it again, we would not actually take on an opportunity. The product is not approved yet with uncertainty when it comes down to a product being approved. We're looking for something that can be accretive, and we will deploy resources in a way that we're not making our EBITDA story and going backward, so I just want to say it again, it has to be accretive or rapidly accretive. So, Philippe do you want provide color on the funding of these sort of opportunities?

[Christian Marsolais:]

Yes, so I'll just maybe comment on the relationship with Marathon. So, we've obviously had very close discussions with them. They are very open to helping us so. These are productive discussions going on. They've always said that they would support us in expanding the business. So they're still interested in that. We're also talking to some investors who are looking to deploy capital if we have some accretive opportunities. Now, you know that in the past, we've always been pretty creative in kind of minimizing the outflows that we make in these deals. So obviously we are looking at ways to finance it. These deals that are creative and different.

[Endri Leno:]

Thank you. That's good color. Thank you. And then if I can just follow-up a little bit more on that on that Marathon loan, the liquidity that you need to sort of beef up by the end of the quarter. I mean, are you looking at something like you did before, perhaps more warrants or what's kind of like the thinking to get back to the liquidity that you need on that covenant.

[Paul Levesque:]

Well, we're still - right now they just lowered the liquidity covenant. And so we're looking to continue discussions with them before the end of this month to kind of finalize where will be. It's a little bit early to determine exactly how it's going, how it's going to play out, but right now, they just provided us lower liquidity amount and without anything extra.

[Endri Leno:]

Thank you. And one last one for me is that on the new guidance, is the delta between the old and the new more related to the gross to net that regarding Q2. I mean, since you know already, how much you had in inventory or can you - is it possible to break down the delta between how much was inventory and how much was gross-to-net?

[Paul Levesque:]

Yes, some of that is obviously the inventories. Like I said, we follow inventories at the specialty pharmacy level closely. Since we internalize the sales force, we developed a very good tracking system. So we have a much better outlook on that, but the sales that we've lost we are not regaining. The gross-to-net issues are mostly behind us as well, so that's kind of what we're seeing, we're bringing maybe a little bit more conservative, but we're confident with these numbers until the end of the year.

[Endri Leno:]

Okay. Thank you very much.

[Operator:]

Thank you. This concludes the question-and-answer session. I would now like to turn the call over to Paul Levesque for any closing comments.

[John Mullaly:]

First of all, there's a few questions the team on the webcast. So the first one is around the timing for the cancer trial, when we're expecting get back in the clinic if we're expecting to keep the market up to rest us to where we are.

[Paul Levesque:]

The answer is yes. I think, Christian you can speak to that. But as we speak the new protocol is being analyzed and approved by the different hospitals from an FX point of view, is that the situation and I think what is very important to know at this time around is that, you do not have to dose one patient at a time. Correct? We can actually dose the patients in parallel. So, Christian you want to additional.

[Christian Marsolais:]

Absolutely, Paul we are expecting some sites are working with private IRBs that are usually bit faster. And we're expecting their response - the final response from one of the private IRB. Some of the sites will be activated and be ready to start screening patients in July. As Paul has mentioned, six patients for the first cohort, the first dose could be recruited at the same time that we don't expect the long period of time to recruit those patients. We will need to wait three months from the last patient enrollment to look at the other events. And after that, we'll be able to enroll an additional six patients. Therefore, we think that by mid-next year, we should have some signs of efficacy and the data on safety as well.

[Paul Levesque:]

And we intend, yes, we intend to actually update the market. When we have - when we are making progress, we are very, very keen to actually get going with the first six. We know that we have something that can actually win. So we will report back as soon as possible.

[John Mullaly:]

Other few questions on the competitive dynamics around Trogarzo, mostly for John. To switch to non-pill regimen then what we're seeing with [indiscernible]?

[Paul Levesque:]

Yes, well, there continues to be a lot of interest in the non-pill regimens [indiscernible] recent launch has generated a lot of interest. We're seeing a lot of interest in combination utilization and are tracking a number of patients that are using both [indiscernible] and Trogarzo. We still track. We're probably relatively closely in this space as you know, patients are on multiple different agents. So it's not about just choosing one versus another. And we continue to see a trend towards more and more non-pill regimens.

[John Mullaly:]

All the other questions have been answered, Paul.

[Paul Levesque:]

Okay, well thank you for attending the call today. I hope you will agree that despite having faced some unexpected headwinds in the front part of '23, we are taking the necessary measures to ensure delivery on our commitments. As such, we are very close to producing adjusted EBITDA-positive quarters and I can assure you we won't rest until we delivered this to our shareholders. Thank you for attending and have a great day.

[Operator:]

Thank you. This concludes the question-and-answer session. Thank you for attending today's presentation and you may now disconnect your lines.