Theratechnologies Inc.
Q1 2019 Earnings Call Transcript

Published: 4 Apr 2019

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Theratechnologies Earnings Conference Call for the First Quarter of 2019. 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. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded today, April 4, 2019 at 8

[Denis Boucher:]

Thank you very much. Welcome. Mr. Luc Tanguay, President and Chief Executive Officer of Theratechnologies; as well as 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 Luc 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 of its Management's Discussion and Analysis issued this morning and to its annual information form dated February 20, 2019, and the Risk Factors section therein available at www.sedar.com under Theratechnologies' public filings. Forward-looking statements represent Theratechnologies' expectations as of April 4, 2019. 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 Luc.

[Luc Tanguay:]

Thank you, Denis. Good morning, everyone, and thank you for being with us today. Historically, our first quarter results have been relatively weaker in terms of growth. This was based on a number of external factors such as private and public insurance deductibles being reset at the beginning of the year. This being said, our first quarter sales for 2019 are almost double what they were in the same quarter last year. In total, we ended our first quarter with sales of US$15.1 million compared to US$8.1 million for the same quarter last year. More specifically, we sold for almost US$9 million of EGRIFTA in Q1 2019, representing 10.5% growth from the same quarter last year. As for Trogarzo, sales keep increasing at the strong pace reaching US$6.1 million in the first quarter of 2019 or 44% more than in the fourth quarter of 2018. Those results give you a glimpse of where this company is heading. Of course this is only one part of the story. So let's start with the EGRIFTA. While some might have thought that we have seen all that we could from EGRIFTA, the recently released study results conducted by Dr. Steve Grinspoon at the Massachusetts General Hospital should convince them to think otherwise. As announced on Monday, top-line results show that tesamorelin reduces liver fat by 37% compared to placebo. It was also shown that 35% of patients returned to normal liver fat values compared to only 5% in the placebo group. Results also suggest that it could have potential benefits on liver fibrosis in HIV patients with NAFLD/NASH. More than 25% of people living with HIV have a hope and at the present there are no treatments available. Of course, this begs the question as to what we will do with this new information. So, one, we have decided to expand our team of medical science liaisons. From six we will increase it to eight with the objective to continue education of NAFLD/NASH in HIV and to address questions from key opinion leaders on the data. While we cannot and we will not market EGRIFTA for NAFLD until obtaining a proper FDA approved label, the role of MSLs will be pivotal in helping the medical community to fully appreciate the meaningfulness of the data. At the same time, we will finalize the analysis of the data and precisely determine next steps. But already a few options are being contemplated. Of course, the most obvious option for us is to work towards an amended label in the U.S., which will include new data and significantly broaden the markets for EGRIFTA in HIV in that territory. Another option will be to assess how we could use this data to re-file in Europe. Given the significance of what was announced on Monday, we will look closely at Europe especially in the light of the fact that we are already building an infrastructure over there for Trogarzo and that there is a 10-year data protection on the first indication in that territory. In addition, we will definitely look at going outside the field of HIV. NAFLD/NASH is probably one of the most pressing concern in the U.S. -- health concern in the U.S. and in the EU. Thus far there is little, if anything, to offer to patient faced with the condition. In light of this positive results and potential options for us, we have taken several measures to reinforce our intellectual property position on tesamorelin or EGRIFTA. First, we have filed a patent application following some of the new findings emanating from Dr. Grinspoon’s NAFLD/NASH study. Secondly, we have recently filed a patent application, which will protect the F4 formulation as well as reinforce the patent position of the F8 formulation which we are now actively developing. As a reminder, the F8 is already protected by a patent expiring in 2033. These early measures are part of our strategy to build the strongest IP position for EGRIFTA, which includes the existing formulation as well as the upcoming F4 and F8 formulations. All this come at a time when we are actively preparing for the launch of the F4 formulation. Given its added features, the F4 will help to support even more growth for EGRIFTA in 2019 and beyond. Our goal is to launch the new F4 sometime in the fourth quarter of this year. All this to say that we are far from having seen all that EGRIFTA can deliver. A lot more is yet to come and we'll put the efforts required to make sure that we make the most of the opportunity that lies in front of us. The same can be said for Trogarzo. After only three full quarters of commercialization, it has become a significant revenue generator. Several sales and marketing activities as well as other initiatives are now being implemented to support market acceptance for Trogarzo. One of them being the deployment of three field reimbursement specialists whose role is to help clinics with reimbursement. Such activities should have a positive impact as reimbursement for Trogarzo is now optimal with some 87% of covered lives in the US having access to Trogarzo. In Europe, our new General Manager is working actively at laying the foundation of our infrastructure. We'll soon staff key positions such as supply chain, market access and medical affairs to reach the appropriate level of readiness and time for the expected decision by the European Commission around the third quarter. The most pressing priorities at this time for the European side is to prepare for the Scientific Advisory Group Meeting which will take place next week. Christian Marsolais and his team have been working on their presentation, met with several key opinion leaders and patient advocates and will be ready to answer questions from the Scientific Advisory Group. While we have met a longer clock stop and that the reminder of the review will appear on the regular procedure, we still expect a recommendation from the CHMP in Q2. In fact, it’s around May 29. Of course, we will inform the market as soon as we have an update regarding the Scientific Advisory Group. Obviously it will be impossible not to come back on the transaction we concluded just before the end of our first quarter. Both EGRIFTA and Trogarzo are the core of our immediate and mid-term future but we will be foolish not to think that -- not to think and interact on our long-term plan. As I said at the time of Katana acquisition announcement, it will be hard to pretend that we are a well-balanced pharmaceutical company without a pipeline. Yes we are not the type to embarking just about any transaction, just to check about. Let me remind you that just five years ago, our Q1 revenues were less than $1.5 million, they are now more than 10 times that and we’ve retained a very strong cash position. As well is the case with Trogarzo and EGRIFTA transactions, we concluded a deal which makes sense and holds tremendous potential. The upfront payment of $2 million we made to conclude the acquisition of Katana, gave access to a platform that has already shown great results in early stage trials. Further development of the platform towards two potential indications in ovarian and triple negative breast cancers will not require large scale trail and could lead to several products for the treatment of various types of cancers. On that note, I will now let Philippe present our results and I will come back after -- for a few closing remarks.

[Philippe Dubuc:]

Thank you, Luc, and good morning, everyone. As Luc just mentioned, we had a very good first quarter. We had consolidated revenues of US$15.1 million or CAD 20.1 million. This is by far our best first quarter ever. This represents growth of 86% over the same quarter last year. What’s particularly interesting to notice is that both EGRIFTA and Trogarzo are significantly contributing to our growth. EGRIFTA sales grew 10.5% to US$9 million or CAD 11.9 million based on higher unit sales and higher net selling price. Trogarzo sales on their part grew 44% over Q4 of 2018 to US$6.1 million or CAD 8.1 million, which is a reflection of everything we’ve put in place since launch. Cost of sales in Q1 2019 was just over $6 million compared to $1.7 million for the same quarter last year. Our cost of sales includes the cost of goods, which increased to $4.8 million in Q1 2019 compared to a little less than $1 million for the same quarter last year. Our cost of sales no longer includes the royalty payment to EMD Serono. It does include the amortization of the asset created with the termination of the agreement with EMD Serono. The higher cost of sales figure also reflects the introduction of Trogarzo in the United States, which carries lower gross margins than EGRIFTA. This being said, we are seeing stable gross margins for each of our two products. R&D expenses increased to $2.5 million in Q1 2019, compared to $1.9 million for the same quarter last year. The increase is largely due to regulatory activities in Europe, which include the inspection of the Wuxi facilities in China, and which are mostly non-recurring expenses. The FDA’s decision to release Theratechnologies from the EGRIFTA post-approval commitments helped to offset the increase in R&D expenses. For the three month period ended February 28, 2019, selling and market development expenses were slightly higher, compared to the same quarter last year. For Q1 2019, they amounted to $5.4 million compared to $5.3 million for the same quarter last year. General and administrative expenses amounted to $1.5 million in the first quarter of 2019, compared to $1.2 million for the same quarter last year. The increase is mainly due to the growth of our business, various business development initiatives, our preparatory work in Europe, as well as the stock-based component of our director's compensation. In 2018, this non-cash amount was recorded in Q2 rather than in Q1. In Q1 2019, finance costs were $1.3 million compared to $156,000 in Q1 2018. This increase is associated with the interest on the convertible notes. For the quarter, we recorded a positive EBITDA of US$1.5 million or CAD 2 million, compared to negative EBITDA of US$1.6 million in Q1 of 2018. This result is encouraging as Q1 is usually our weakest quarter of the year, and this year’s number includes non-recurring R&D expenses related to the European filing of Trogarzo. In the first quarter of 2019, we recorded a net loss of US$1.2 million or $0.02 per share compared to a net loss of US$2.1 million or $0.03 a share for the same period last year. Operating activities generated $2.3 million of cash flow in first quarter with $1.1 million coming from operations and $1.2 million coming from changes in operating assets and liabilities. While our inventories had been increasing during the launch of Trogarzo, these have now stabilized to appropriate levels given our internal sales estimates for the near future. Our financial position remains very strong with US$54 million or CAD 71 million in cash and bonds at the end of the quarter. On this, I will now turn to Luc for his closing remarks.

[Luc Tanguay:]

Thank you, Philippe. In the first quarter, if the first quarter is anything -- any indication of -- 2019 will be a very good year for Theratechnologies. Without taking into account any of the recent announcements, EGRIFTA and Trogarzo represent a growing opportunity for the company. Looking back at where we were not so long ago, it gives an appreciation of how much has been accomplished. Yet much more lies ahead. Of course, it will be hard enough to be excited with the study results announced earlier this week. As I said, we need to further analyze data but I think that we have something unique and that could propel Theratechnologies and EGRIFTA to new heights, not only in HIV but potentially outside the field of HIV. We also have in Trogarzo a product that keeps generating more and more revenues in the US and could relatively soon be approved in Europe. This is not to say that we will not pursue other opportunity to further strengthen our presence in the US and Europe, we will keep looking for transaction that makes sense and that could either grow our revenues or build a stronger product pipeline. In that sense, the acquisition of Katana represents an excellent opportunity to develop our pipeline at a reasonable cost and to build our long-term portfolio and we look forward to sharing new data as it becomes available at scientific meetings in the near future. More than ever, we remain committed to success of Theratechnologies as we continue to implement methodically and rigorously our strategic plan. So I want to thank you all for being on the call today. And we will now take questions from financial analysts.

[Operator:]

Thank you. [Operator Instructions] Your first question comes from the line of Dewey Steadman from Canaccord. Please go ahead.

[Dewey Steadman:]

I guess, just wanted to get your thoughts on the timing for the next decisions that you need to make for EGRIFTA in NASH. Obviously the three options I mean you labeled in the US, re-filing in the EU and looking outside of HIV. And what factors will weigh into an investment decision behind that product?

[Luc Tanguay:]

Yes. I'll ask Christian may be to answer that question.

[Christian Marsolais:]

Yes. First I would like to maybe reiterate a bit what like I said in terms of the quality of the results. The -- at the moment in terms of the final report, first of all the drug is already in the market as you know, it's been in the market for a number of years and we have a very good safety profile. You also know that about a year ago -- that more than a year ago the FDA stopped both of our post-approval commitment trials to address some of the safety concern that we had at the beginning. Based on the fact that the label at the moment is enough in terms of cover very well the safety profile of the drug. Then the result that we have with a 37% decrease in liver fat content is very good. And the second one that we have announced is the normalization in 35% of the patient population, considering that the average liver fat was 14% is highly significant, and also the preliminary results on fibrosis showing benefits are all very good. Then for us in terms of the next step is to ensure that Dr. Grinspoon will be able to publish those results in scientific meetings and highly ranked scientific publications. And we will move with developing the different options. There are many options in terms of future clinical development plan. There would be some that would be probably the fastest to change the label in the US. We'll see what we can do with the results that we have obtained with the Dr. Grinspoon study, and maybe to join that study with the previous one that he obtained in patient with lipodystrophy showing similar decrease in percentages in liver fat, up to a much larger program that could potentially give us an indication for NASH, either in HIV or non-HIV. And finally maybe taking into consideration that in Europe the first approval will give us 10 year data protection, we will consider all option as well for Europe.

[Dewey Steadman:]

And then I think the first I’ve heard about the F8 formulation. Can you talk about the advantages of that over F4 and maybe its product profile and potential timing there? And should we continue to assume a constant lifecycle management strategy for EGRIFTA that could push out the contribution from that product franchise well beyond the 2023 assumption of generic centered market?

[Luc Tanguay:]

Christian.

[Christian Marsolais:]

Yes, the F8 -- briefly the F8, I think that you know now the way we name our different formulations, the F1 was 1 milligram per ml, the F4 is 4 milligram per ml and it's stable at room temperature. And the biggest advantage of the F8 would be that it will be a multi-dose vial, meaning that the patient can reconstitute once per week. And after that in terms of the volume of injection, we're not totally sure about the volume because we haven't done the bio-equivalent study yet. But it will be probably similar to what we have with the F4, and all proportion kept, it is around about 200 microliter, meaning that for the patient it will be much simpler to use. Yes, it is exactly part of our life cycle strategy for the product. Now with the results that we have in NAFLD and the indication about the benefit on fibrosis, that formulation which is already patented could you give us a further life cycle for EGRIFTA in the years to come.

[Operator:]

Your next question comes from line of Brian Abrahams from RBC Capital Markets. Please go ahead.

[Brian Abrahams:]

First question on Trogarzo. You saw a nice quarter-over-quarter uptick. I wondering if you could drill down a little bit more on those specific dynamics there in terms of how you're seeing prescription patterns evolve? What patient compliance is like? How long patients are staying on therapy? And whether there was any impact of inventory build up or draw down in the quarter?

[Luc Tanguay:]

Yes, as you know, Brian, we haven't and we will not give at the moment any guidance for the sales of Trogarzo. But that being said, I have to say that sales are still continue to grow -- are still continuing to grow. In terms of compliance, retention and so on, we have to see that as of now it's above our estimate, it’s going pretty well, patient on the drug -- standard drug -- a lot, the percentage is very high, over 90%, so it’s going pretty well on that side. So it's above expectation in that regard.

[Brian Abrahams:]

And what in fact might you expect the more rapid IV push to have on the market dynamics and uptake?

[Luc Tanguay:]

Christian, you want to answer that?

[Christian Marsolais:]

Well, this is a question that we heard from many physicians that I think that’s like if you think about the patients, the IV slow push the patient will get in the clinic, the infusion will be done over about 30 seconds, then total time into clinic might decrease significantly to 15, 10 minutes at the most. I think that it will add to the convenience for the treatment as well as for the staff, then we know that, that will not have any impact on the reimbursement of the action of the infusion. But for the step, it will be much faster to do the infusion for the patient and that should really help.

[Brian Abrahams:]

Great. And then just on EGRIFTA in NAFLD, could you may be talk a little bit more about the implications of this reduction in liver fat for HIV patients. What that might mean for the long-term? What degree that we might expect some of these findings to influence the growth in adoption of the drug in the medium term? And then lastly just on the fibrosis changes, if you could be a little bit more specific there, I’d be interested in learning whether you saw a prevention in worsening or a regression -- an actual regression in fibrosis and what kind of magnitude that look like? Thanks.

[Luc Tanguay:]

I think, first of all, we have a MSL team. It was known that, that study was ongoing. And over the past year we had many questions from physicians that are very concerned about the liver of their patient to some extent. They know that NASH in HIV patients has a prevalence of about 30%. We know that the age of the HIV patient, the average is probably around 55 to 60, then there will be significant impact of NASH in the life of the HIV patients in the future. There are no treatments and at the moment these results certainly give the physician a different perspective on the drug. The results that we had in the past were significant in terms of decreasing visceral adipose tissue but it was -- or some physician looked more as a cosmetic condition. Now with the liver fat decrease that we have seen, they will certainly change their probably view about the product and the effect of the product on the long-term safety or condition of the HIV patients. I think that’s something that will be extremely important. In terms of the results for fibrosis, at the moment it’s preliminary but it is very encouraging. As you know, the patient will probably -- patient enrolled in this study was based on the liver fat content and not on the biopsy, on the diagnosis of NASH. Therefore, it’s not the entire patient population that have NASH signs and symptoms in our population but on the one that have the NASH symptoms we have seen encouraging signs in terms of potential benefit for fibrosis.

[Operator:]

[Operator Instructions]. Your next question comes from the line of Stephen Kwai from National Bank Financial. Please go ahead.

[Stephen Kwai:]

I'm actually calling in for Endri Leno. Just one question from me and I apologize if I’m asking you to be a bit repetitive. I know you touched upon it at the beginning of the call. But if you could just provide some more color on your plans for EGRIFTA in NASH going forward, maybe if there's something that you're leaning towards? Thanks.

[Luc Tanguay:]

Okay. As I mentioned in -- the first thing we're doing is we will hire or we are hiring new MSLs, we’re going from six to eight. And the MSL will be able to discuss with physicians and key opinion leaders about the benefit of EGRIFTA in that condition. So, a lot of education on that side. The option that we will look at in the coming weeks and months are three at this point and of course this could change according to the more detailed data that we will have from the rest of the analysis. The first option is definitely to look at expanding the label of EGRIFTA in HIV, including the NAFLD/NASH results. The second option is to look at maybe refiling Novak with those new data, knowing that in Novak we could have a 10-year data protection if we go there. And finally, definitely, with this kind of result, we cannot allow not to look at the possibility to go outside the HIV field. So we'll look also what are our option in that regard, especially in the light of the development we're doing at the moment with the F8, which is protected until 2033 with the formulation patent.

[Operator:]

Your next question comes from the line of Doug Loe from Echelon Wealth Partners. Please go ahead.

[Doug Loe:]

A set of questions, just looking at a little bit more longer term, I mean you clearly have your plate full here with ongoing Trogarzo launch and regulatory activities in Europe and potential expansion of EGRIFTA’s indications in secondary metabolic markets. But in your longer term objective, which you've talked about on prior calls and MD&As was to add other niche HIV assets, ideally commercial stage if you could infuse into your U.S. network as a way to kind of offset -- well not offset, but to leverage the marketing infrastructure you already have in place. So I was just wondering if that's still an area of active investigation for you to look for assets there, are there assets that you think you could acquire in the medium term? Are you seeing any pushback on valuation? And are there any specific HIV associated medical markets that you think would be more attractive than others? Just commentary that would be helpful. Thanks.

[Luc Tanguay:]

Hi, Doug. Sure, we -- as I mentioned in the speech, we're still active in looking at the potential product or pipeline that could fit in with our portfolio, meaning HIV portfolio of course. So we're active on that side. Just remind you though that we acquired recently Katana which is something in cancer. So now we start to have -- we have product in our portfolio for the long-term. But definitely we will see opportunistic. If there are some good opportunities out there, we'll look at it. But as you know us, we're very prudent with this kind of move. We want to do something that is affordable to us, that we can develop ourselves, eventually market ourselves. So those opportunities are not that many, but definitely is the part of the job of Philippe and myself to look at those opportunities.

[Doug Loe:]

Right. Well, maybe not to push on this too much. But any already commercial-stage HIV assets would obviously you be aware of them and they would be commercial. And so presumably you have considered all opportunities that might be available. So are you not -- and I understand that your pipeline is quite full with other initiatives, but I guess are you seeing a little bit -- like valuations you might be considering just kind of unattractive when compared to your own expectations or one reason or another you're seeing other markets just kind of attractive in comparison to those targeted by EGRIFTA and Trogarzo. Just kind of wondering what the sort of context is for what secondary business development activities might be ongoing there? And then I’d probably leave it there.

[Luc Tanguay:]

No, definitely, we have opportunities in HIV that will fit and be a good asset to add to our sales force, we will look at it. That being said, it needs to be a real -- a really good opportunity. At the moment our sales force needs to be really focused on Trogarzo. We have a lot of potential growth there. So sales force needs to be focused on that. And of course with the new data on EGRIFTA that could be also a very, very good opportunity. So that being said, we want the sales force to be focused on those two products for now. But if there is an opportunity, we will see and evaluate it correctly. But at the moment, there is nothing let's say in the very short-term in that regard.

[Operator:]

There are no further questions at this time. I’d turn the call back over to management for closing remarks.

[Luc Tanguay:]

Thank you very much. On behalf of everyone here at Theratechnologies, I would like to thank you for being on the call today. Have a very good day. Bye. Good bye.

[Operator:]

This concludes today's conference call. You may now disconnect.