Theratechnologies Inc.
Q4 2020 Earnings Call Transcript

Published: 27 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to this Theratechnologies conference call. I would now like to remind everyone this conference is being recorded today, February 25, 2021at 8

[Denis Boucher:]

Thank you, and welcome. Mr. Paul Lévesque, 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 open exclusively to financial analysts 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 statement will materialize, and you are cautioned not to place undue reliance on them. Theratechnologies refers to current and potential investors to the forward-looking information section of its management's discussion and analysis issued this morning and to the risk factors section of its Annual Information Form dated February 24, 2021, available at www.sedar.com and on EDGAR at www.sec.gov as an exhibit to its report on Form 40-F dated February 25, 2021, under Theratechnologies' public filings. Forward-looking statements represent Theratechnologies' expectations as of February 25, 2021. Except as may be 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. As we present the financial results for the fourth quarter of 2020 and reflect on our full year performance, we are proud of what we have accomplished, especially in a year where a global pandemic challenged our business model. The company I joined less than a year ago has undergone significant changes. I believe the Theratechnologies of the future will have little resemblance with the company of the past, thanks to the continued progression of our icon. Last April, during my first quarterly call as CEO, I said that I would take 60 to 90 days to review our business model and identify the levers of success and investment required to fully recognize our potential. I quickly realized that COVID-19 or not, changes were needed to optimize the commercialization of our 2 unique products in HIV. It also became clear that to accelerate the sales performance of both EGRIFTA and Trogarzo, much more patient and HCP education was required to properly establish the benefits of our medicines. As such, in the second half of the year, changes were implemented to adapt our business model and increase our digital and virtual marketing initiatives. The goal is to improve patient outcomes by building upon real-world evidence to inform guidelines and advance the care of people living with HIV in the pandemic environment. For instance, as telemedicine consultations between HCPs and patients increased, we launched tools to allow both doctors and patients to have meaningful conversations about treatment option and to better understand patient's condition, initiate their treatment with one of our HIV medicines and maintain their compliance. We added to our education program the latest information, which links visceral fat to worsening COVID-19 symptom severity. This is an important message that supports the urgency to treat visceral fat as a serious metabolic condition, particularly during the pandemic and to differentiate it from a lifestyle disease. As for Trogarzo, we have deployed a similar approach by developing online tools and virtual events aimed at educating HCPs and patients on the importance of maintaining an undetectable viral load. For people living with HIV, a detectable uncontrolled viral load can have huge implications on their overall health, and these viremic patients are at increased risk of HIV-associated morbidity and mortality. In fact, we branded a new program called V equals V which stands for viral load equals vulnerability, and we keep selling Trogarzo's long-acting profile as a key benefit versus the competition. We're also developing tools to help HCPs identify people with multidrug-resistant HIV that have exhausted options to treat their disease. The goal here is to create a sense of urgency for doctors to treat their uncontrolled condition. Our new approach in patient activation leverages HIV digital influencers and social media to drive patient self-identification and request. Furthermore, our new community liaison team performs a digital outreach to case managers in high prevalence areas to help identify patients at risk of lipodystrophy or a detectable viral load. With these, we wish to empower patients to own their condition, which will lead to superior interaction with HCPs and ultimately, a better outcome.

[Philippe Dubuc:]

Thank you, Paul. Good morning, everyone. Our last quarter was our best ever, and the same holds true for our last fiscal year. In fiscal 2020, we recorded net sales of $66.1 million, representing an increase of 4.5% from the previous year. Net revenues for EGRIFTA SV were essentially flat in 2020 compared to 2019. We recorded $35.4 million in net revenues from the EGRIFTA franchise compared to $35.5 million last year. As for Trogarzo, annual net revenues were up approximately 11%, reaching $30.7 million at 2020 compared to $27.7 million in 2019. Cost of sales slightly increased, reaching $26.9 million at the end of 2020 from $26.1 million the year before. Higher cost of sales is a reflection of production costs related to the manufacturing of GMP batches for our oncology platform. Cost of goods sold, on the other hand, was lower as EGRIFTA SV carries higher gross margins than the original formulation of EGRIFTA. And Trogarzo gross margins increased in the latter part of the year, given the achievement of a predetermined net sales milestone amount in the third quarter of 2020. Selling expenses remained fairly stable and were up by approximately $400,000, reaching $26.9 million in 2020 compared to $26.5 million in last year. In 2020, R&D expenses increased to $18 million compared to $10.8 million the previous year. The increase in R&D expenses is largely due to our oncology program, the development of the F8 formulation and multi-dose injector, our NASH program as well as increased regulatory expenses and medical activities in Europe. G&A expenses grew to $12.2 million compared to $8.3 million in 2019. This is a result of the transition to a new CEO, the listing of our common shares on NASDAQ and an increase in activities in Europe. Financial expenses for the year were down slightly to $5 million compared to $5.1 million last year. These include the interest payment on our convertible notes and a noncash accretion expense of $2.1 million. These costs were offset by finance income of $300,000. In 2020, we recorded a net loss of $22.7 million or $0.29 per share compared to a net loss of $12.5 million or $0.16 per share in 2019. Operating activities used $13.6 million of cash in 2020 versus $3.4 million last year. Our operations used $7.3 million while changes in operating assets and liabilities used $6.3 million. While increased receivables and prepaid expenses were mostly offset by accounts payable and accrued liabilities, inventory buildup used $4.9 million, mostly due to the buildup of inventory in anticipation of the Trogarzo launch in Europe. Other uses of cash for the year were the payment of interest on our outstanding convertible debenture and the payment of a $3.5 million commercial milestone to TaiMed. We ended the year with a cash and equivalents balance of $20.8 million. Given the capital raised in January 2021, our pro forma cash balance as at November 30, 2020, was approximately $63.5 million. Looking at our Q4 numbers, total net sales reached $19.1 million compared to $16.4 million for the same quarter last year, representing an increase of 16.5%. Net sales of EGRIFTA rebounded nicely in Q4. They amounted to $10.8 million in the last quarter of 2020 compared to $8.7 million for the same quarter last year, representing an increase of 23%. Trogarzo sales in Q4 2020 were $8.3 million compared to $7.7 million last year, an increase of 9%. Cost of sales in Q4 2020 was down slightly to $6.7 million compared to $7 million for the same quarter last year.

[Paul Levesque:]

Thank you, Philippe. I think that based on what we have just discussed, it is fair to say that Theratechnologies has turned a corner. I would even dare to say that the Theratechnologies of today is substantially different than what it was when I joined the company. In 2020, we have not recorded as much growth as we would have liked, and we remain cautious about predicting results in the upcoming months due to the COVID-19. The vaccination phase should be the beginning of the end for the pandemic. However, it will continue to disrupt normal HCP-patient interactions, especially in hospitals and clinics, which are mainly devoted to massive vaccination activities. We are, therefore, building for the long run, and I'm confident that we have implemented the required measures and taken the necessary steps to give us a stronger competitive edge post COVID-19. I also think that the progression of our pipeline in the last year is nothing short of spectacular. In just a year and in the midst of the global pandemic, we managed to file 2 investigational new drug applications, received 2 Study May Proceed letters and obtained a Fast Track Designation for our SORT1+ oncology platform. This Fast Track designation for sortilin-positive recurring advanced solid tumors that are refractory to standard therapy is a much broader starting point than is stated and provides the chance to have regular interaction with the FDA. We're also -- we also have obtained a Study May Proceed letter for our Phase III program in NASH. We are now entering into final discussions with the agency and should be ready to go by the third Q of this year. Meanwhile, other key activities are all moving forward as planned. That is the development of the IV push and intramuscular administration of Trogarzo and the tesamorelin F8 formulation in a multi-dose pen. All of these are key to our futures. And with the January offering, we are now well positioned to successfully execute on our 2021 business strategy and objectives and build significant value for our shareholders. Over the last year, we have raised the bar to new heights for Theratechnologies, and we thank you for being part of our journey. We will now take questions from analysts.

[Operator:]

You have a question from the line of Edward Nash with Canaccord Genuity.

[Edward Nash:]

Hi, good morning, everyone. And thanks for very much for taking my call. And really appreciate the nice overview today. I wanted to ask you just a couple of questions on the HIV program, and then I can jump back into the queue, if necessary, for my other questions. But one of the things you talked about is the HIV program that you're spending a lot of time, have been now for some time, to customize those programs on the marketing side to basically show how it can fit into what is currently now real-world practice, which I think makes a lot of sense. We're seeing a lot of that happening in design of NASH trials, which I cover as well, and so I think you guys doing this is great. As you're doing that, do you see these changes as staying put and being maintained the way they will be in their new form even after COVID? Or will there be kind of -- will there be a regression to the mean to kind of move back to the traditional marketing sales efforts that we normally see with drugs?

[Paul Levesque:]

Well, thank you, Edward. This is a good question and I'm happy to respond. This sort of investment that we're doing now to establish the need for both Trogarzo and EGRIFTA will be long-standing changes in investment. Fundamentally, our business responds to medical activities, marketing activities and sales activities. Fundamentally, the medical activities takes a little bit more time before producing a return. Marketing is medium term and sales should be within weeks or months. And it's the convergence of all of this that makes it powerful. So what we're doing now is a very comprehensive plan. And I'm sure that the outcome will actually get only better as a function of time as obviously it takes time to have the right KOL in front of the HIV providers, tell your story once, twice, 3x, have the camps that will be following up to closing the sales, and meanwhile, ensuring that the patient, as I said, will have more information to own their conditions and ask more powerful questions with the HIV providers. So as I said, I think that this is not a short-term plan. This is a long-term plan that will actually produce superior outcome over a long period of time. And quite frankly, aside from the pandemic, which is slowing down some of the activities that we are putting forward, I have no concerns whatsoever. The market is going to react to our promotional and messaging in the upcoming months and years. Thanks for your question.

[Edward Nash:]

Right. No, that's helpful. And 1 just follow-up, if I could. Just with regard to Trogarzo single-bolus injection, it's good to hear that, that trial is fully enrolled. And I know at that time, that's under TaiMed's purview. But with regard to developing IM for that, is that really just a matter of chemistry? Did we know that, that can be done? It was kind of the discussion I had with you guys on tesamorelin when we were moving from the different generations of F2, F4, F8, it was just a matter of chemistry. Is that the same here where we know it can be done, it just needs the time to be able to get that done?

[Paul Levesque:]

Yes. Go ahead, Christian. Thank you again for your question. This is more technical. I'll turn to Christian. Christian, go ahead?

[Christian Marsolais:]

Yes, absolutely. The -- and if you remember, Edward, we have presented some data probably about 2, 4 years ago, on an IM injection in Taiwanese patients. And what we have to do now is to redo it in North American patients at the right dose, at the dose which is being approved. And in terms of the source of drug, it's the exact same thing. The IV -- the difference with the IV slow push is that it's the concentrated drug product which is administered to the patient. The IM will be the same thing. And that study will be initiated as soon as we -- in the coming weeks with the IM.

[Edward Nash:]

Okay. And I'm sorry, wow, really last question just on HIV is just -- can you just make a comment on any -- of the tough conversations you've had or any formal analysis you've done to see to what degree has there been any impact from Rukobia on -- I know Rukobia also needs another active driver. Obviously, tesamorelin does. But I'm sorry, Trogarzo does, but just curious how much Rukobia has kind of -- if it has, put a rinse in the works.

[Paul Levesque:]

Yes. Well, thank you. I mean, from what we know, fostemsavir was approved last year. They've been negotiating access. From what we know, they have not been put in a better access position than we are positioned ourselves in on the clients, and they probably do not have the same coverage as we have because it takes a fair amount of time to get access with the numerous clients in the U.S. They share the same indication, which is not bad from my perspective because that should contribute to opening up the segment. The segment that we are in is multidrug resistance. And fostemsavir will have to do a bit of what we're doing, which is educate the patients and the doctors for them to have a sense of urgency to change the triplets of medicines that they are currently using. And what we have that they don't have is a long-acting one. So a long-acting formulation allows you to have a better coverage. And a lot of people will say that one of the reasons why a multi-drug resistance has emerged is because of the lack of compliance. So if you use a Viiv medicine, you're directionally going in the wrong direction. And we're going to continue to hammer our long-acting benefits, which will be translated into the IV push and eventually the IM formulation. So again, I think that fostemsavir is something that we're watching. We respect competition but we'll fight competition. And I think that as long as the MDR segment increases, we're going to be in good shape. Thank you, Edward.

[Operator:]

You have a question from the line of Andre Uddin.

[Andre Uddin:]

Good morning. Just actually I wanted to ask you, what do you think would be your most important catalyst in the next 12 months?

[Paul Levesque:]

Well, thank you for that question. I think that getting into cancer now and having a chance to show the safety associated to TH1902 in human and also early sign of efficacy is definitely something that will be a catalyst. And obviously, we know that we can proceed with the NASH part of study that we have put in front of the Food and Drug because we received the Study May Proceed. But we are refining the protocol now and every bit is important for the future success of that program. So having a protocol approved that the FDA will like is also a key catalyst. And let me turn to Christian for additional color. Christian?

[Christian Marsolais:]

That's mainly also something that we've discussed in the past. With the oncology base on our technology, what we have is we bring the cytotoxic specifically in the cancer cell, and in the animal studies, we haven't seen any neutropenia. Then in the first-in-human, you're talking of dose escalation. And as soon as we reach level where we would be in the zone where the cytotoxic alone docetaxel would be toxic, if we don't see neutropenia, that will be a very, very good sign for the platform. As for the efficacy data, we need to wait a bit longer because even if we see something, we still need 2, 3 months before we can confirm the efficacy. Then what we think for the oncology, end of the summer, probably some safety and probably towards the end of the year, some efficacy data, which should be something that will be an important catalyst for the company.

[Andre Uddin:]

And just in terms of a housekeeping question for Philippe. In terms of SG&A, if you look roughly at the run rate in the fourth quarter, should we expect that for 2020?

[Denis Boucher:]

Andre, this is Denis Boucher here. Would you speak a little louder because we can barely hear you?

[Andre Uddin:]

Okay, I'll pick up here. Just in terms of a housekeeping question, do you expect SG&A for the run rate in the fourth quarter to be the same in 2021, roughly?

[Philippe Dubuc:]

Yes. It should be in line. There might be a little bit more expenses in Europe, but in North America, it should be in line.

[Andre Uddin:]

Okay. And also for 2021, do you expect any price increases for EGRIFTA or Trogarzo? I know that's hard to predict.

[Philippe Dubuc:]

Well, we don't -- we're not going to disclose that but you could probably expect some, yes.

[Operator:]

You have a question from the line of Endri Leno with National Bank.

[Endri Leno:]

Good morning and thanks for taking my question. A couple for me. First, I was wondering if you can talk a little bit about Trogarzo in Europe. First, how are the sales or what kind of reception are you getting in Germany? And any kind of initial forays in Norway? But also a bit of color on -- you mentioned, I think on prepared remarks, Paul, on patient identification for Trogarzo in Europe and then lastly on that 1, the post-authorization study for Trogarzo. And the question I had there, I mean, is it more of an observational study? Or are there any endpoints, how long it might take and the cost?

[Paul Levesque:]

Thank you, Endri. So the situation in Europe is unfolding nicely when it comes down to establishing the quality of the medicine that we have. And if anything, through the launch convention that we had in Germany, where we had well over 200 attendants, the need for Trogarzo is clear. And what we're doing now because we are in a lockdown situation and that is mind-boggling, as you can imagine, but the patients have been identified. So we have a number of patients identified. We don't have any -- we need to actually hit our objective. And quite frankly, I keep saying to the folks over there, do whatever you can do under the circumstances. As long as the patients have been identified, even if they are on the sideline for the time being, as soon as things reopen, they will be treated. And we obviously have a fair amount of patients treated on the early access program, especially in France, where we have a significant cohort under the ATU, so the temporary utilization approval and that will continue. So we're building a number of patients now that will be getting out tested and getting on Trogarzo as soon as it reopens. And I can tell you, from a scientific point of view, I'm very happy with what I hear. We have a team of MSL absolutely stunning in Europe, virologists for some of them in the different countries, Germany, Spain, France and what-have-you. So as per my plan to set up the science first, I'm ticking off all the boxes at this time from that point of view. When it comes to submissions in countries, some countries are overwhelmed at this time by COVID. So it is possible that some of our submissions will be late. But again, we'll pick up pace as fast as possible, and we'll try to maximize meanwhile before the drug is reimbursed, what we call the early access program. Thank you for your question.

[Endri Leno:]

And just to follow up on that. On the post-authorization study, I mean, is it only an observational study or are there any endpoints that you need to hit? And how much might it cost, if you have an update?

[Paul Levesque:]

Okay. I'm going to ask -- well, thank you. I'll ask Christian to answer this one.

[Christian Marsolais:]

Yes, thank you. The -- for the registry in Europe, this is a registry that was requested by the European agencies. And the goal is really to look at the long-term efficacy. They wanted to be reassured that the efficacy of the drug will be maintained long term. We already have very good data up to 96 weeks that have been published but they wanted to have data on the longer term. That's the goal. Then it's also safety but safety, we know that this drug is extremely safe. It's -- but it's really the efficacy question. And the study is ready to ramp up in Europe.

[Paul Levesque:]

Thank you, Endri. And as a rule, these post-marketing surveillance trial are very positive because they allow you to build a network of leaders, KOLs, people interacting with patients and other colleagues, building confidence into a new medicine, and that's precisely what we're going to try to leverage.

[Endri Leno:]

Great. And 1 more for me. Is it possible to provide any information, I mean, if there is anything new on discussions that you might have had with the EMA for tesamorelin in NASH? In terms of kind of are there any points of divergence between them and the FDA that you're looking to bridge before you start the trial? And that's it from me.

[Paul Levesque:]

Christian?

[Christian Marsolais:]

Well, in terms of -- you know that we already have the drug. So we -- we have submitted the kind of the package, if you want. We -- for HIV. We know their position. We know their questions. We're comfortable in addressing their questions. And that will take place in parallel with our discussion with the FDA to ensure that we're -- have a common clinical program midyear for a start of the study in the third Q.

[Operator:]

There are no additional questions at this time. I'm sorry, we have a follow-up question from Edward Nash.

[Edward Nash:]

Hi, thanks. Sorry for that. I appreciate you doing the follow-up. I just wanted to ask a couple of quick questions as for timeline standpoint. So the supplemental BLA for the F8 pen injector, I'm thinking, given when you're looking to submit that we should have potential approval, if there are no hiccups, by the end of '22 or early '23 at the latest. And I just wanted to know, would you guys be launching that immediately for tesamorelin? Or would you hold off for a little bit since we've just had the new formulation on the market for not that long so far?

[Christian Marsolais:]

Well, at the moment, in terms of the completing the file for the submission of the F8 we want to have a 1 product combining both the drug and device, the multi-dose pen, that should be -- and we're targeting an approval probably more towards the end or the second half of 2022. And the goal will also be to prepare the market for something like this. We think, as Paul mentioned before, that this is certainly something that will -- should have an impact both for physicians and patients. And we'll be preparing a launch, so it could be launched as soon as it gets approved by the FDA.

[Paul Levesque:]

So we intend to launch it for the indication we currently have and do the switch a bit like what we did between the F1 and the F4, so the SD formulation. When the pen and the new formulation becomes available, we will be using it as soon as it becomes available as part of the NASH trial, but we will actually make a submission for EGRIFTA so that we can enhance the patient experience, and we believe that this will be significant.

[Edward Nash:]

Yes. Discussions I've had with HIV docs, I think they were pleased with the -- going through the F2 to F4 but F8 definitely kind of changes the whole game, and so I think that's great to know you guys will be coming out with that directly. And my last question is I know -- it's not currently in my model, but this year, we are going to start to really get some meat on the bone with regard to the oncology programs. And I just wanted to see -- I know with 1902, that we're -- you're preclinical with melanoma and that you've got -- you're looking at multiple solid tumors, endometrial, ovarian, colorectal, pancreatic. Just wanted to understand the differentiation with the conjugate, docetaxel in 02 and doxy with 04. What would 04 -- where does 04 fit in? I know it's earlier stage but just kind of to better understand the complete landscape of the 2 programs you have right now.

[Paul Levesque:]

Well, thank you. That's a good question. And quite frankly, before answering what 1904 can be used for, we have to see how far we can go with 1902. And quite frankly, with the Fast Track that we got and the type of label associated to that, 1902 has wide application. So quite frankly, we continue with the progression of 1904 and we will potentially design additional peptide drug conjugate. But first and foremost, we're trying to see the full potential of 1902 with the overall objective of bringing them to the market as fast as possible. So Christian, do you want to add anything?

[Christian Marsolais:]

Yes. No, this is exactly what we have to do. And maybe the reason is because like at the beginning when we bought the company, we had very limited efficacy data on both. 1902, we had efficacy data with 1902 only in breast cancer and 1904 only in ovarian cancer, and this is the way that was positioned. But since then, with the work that was done and the additional research, we clearly see that 1902 as a much broader potential than what we initially were thinking that, as Paul was saying, I think that we absolutely to see the entire potential of 1902.

[Paul Levesque:]

But we will carry on our strategic thinking as Christian continues to establish confidence with 1904. And I'm sure that we'll have a co-positioning at the right time.

[Edward Nash:]

That's great. And congratulations on getting a lot of clinical and structural work done in a really hard year.

[Paul Levesque:]

Thank you. Appreciate it. Thanks for your support.

[Operator:]

And there are no questions at this time.

[Denis Boucher:]

Well, thank you very much. If there are no additional questions at this time, we will conclude our call this morning. I would like to thank everyone for being on the call today. On behalf of everyone here at Theratechnologies, I wish you a very good day.

[Operator:]

Ladies and gentlemen, this does conclude today's conference. You may now all disconnect. Thank you for your participation.