Theratechnologies Inc.
Q3 2019 Earnings Call Transcript

Published: 8 Oct 2019

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to this Theratechnologies Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, October 08, 2019 at 8

[Denis Boucher:]

Okay, thank you and 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, opened 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 sedar.com and on EDGAR at SEC.gov under Theratechnologies' public filings.Forward-looking statements represent Theratechnologies' expectations as of October 08, 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. I do hope that you had a great summer. On our side we worked on several projects to support EGRIFTA and Trogarzo as well as to move forward with the clinical development of NASH in HIV patients and our targeted oncology platform.To start with, EGRIFTA SV will be commercially available in the coming weeks, already our entire sales team has been fully trained and is ready to detail into physicians in the U.S. EGRIFTA SV, which stands for small volume and single vial should help to generate sales growth. As you know, EGRIFTA SV features several advantages over the original formulation.First of all, it is stored at room temperature. The needle is also much smaller. Finally, as I just mentioned, it comes in a single vial and less medication needs to be administered. We believe that with so many improvements patient adherence should increase. Greater adherence means that more patients will [stand around] [ph] for a longer period of time which will sustain sales [volume] [ph].We also think that more patients and physicians may be content that the new formulation is simple enough to use to justify initiating treatment. As for Trogarzo, our third quarter sales are not quite yet at the level we wanted them to be. Sales of Trogarzo are up substantially from the same quarter last year, but they have not sufficiently increased compared to the previous quarter. Over the last quarter, unit sales to specialty pharmacies have grown by 6%. It’s obvious that adjustments are needed and adjustments will be made. In fact they are being made as we speak.Our goal remains to have peak sales of at least five times current sales of EGRIFTA. The key is to make sure that we have the right tools in place to get to that objective. Over the last few months, many initiatives have been implemented such as a pilot direct-to-consumer advertising program. Already we have seen an impact from our social media campaign in terms of generating traffic on our branded websites as well as increasing scripts for dose specific territories.All parameters are pointing in the right direction, and this is why we have decided to expand this campaign immediately in the ten largest U.S. cities. We hope that we will observe the same kind of impact we are having in the pilot cities.In the coming weeks and months many more activities designed to increase product awareness and patient empowerment will also be initiated. Also physicians will have - will be able to prescribe Trogarzo electronically. We believe that these tools will lead to greater patient and physician awareness. Combined to an exceptional rate of patient retention and high degree of treatment compliance, we are convinced that we will generate more traction in the next 12 months.The European approval of Trogarzo represents another important achievement for the company. It is also a great accomplishment for the team at Theratechnologies which [indiscernible] all the way to approval. I want to take this opportunity to thank them for their hard work and perseverance in leading these [indiscernible] to a successful conclusion.While we already have patients on treatment in France, Italy, and Spain through government paid early access programs, the key will be to secure reimbursement in the European countries. We have put the right team in place to work on this crucial aspect, and we expect sales to really start picking up in 2021 as reimbursement is secured on a country by country basis over the next 12 months. As a result of the launch of EGRIFTA SV, the strong push for Trogarzo in the U.S. and its approval in Europe, we have a strong base to grow revenues in 2020.Of course there is a lot more to Theratechnologies than our two commercialized products having rebuilt an enviable pipeline since the beginning of 2019. First, there is the development of EGRIFTA for the treatment of NASH in HIV patients. As you know, there has been a lot of interest in the medical and patient communities ever since we released the study results on the impact of tesamorelin on liver fat. NASH represents a huge opportunity. In HIV alone, our early market research points to a population over a 100,000 patients.Compared to the other experimental treatments currently being investigated for NASH, EGRIFTA is already commercialized and its safety profile is already well demonstrated. The Phase 3 trial requires to obtain a NASH indication could involve a relatively small number of patients. In the coming weeks we will request a meeting with the FDA and the EMA to ascertain our clinical development plans. Our pipeline also includes our target oncology platform which we acquired as a proprietary technology with minimal upfront costs.Furthermore, the investments required [currently] [ph] proof-of-concept in humans will be limited. In vitro and in vivo results obtained thus far are showing great promise and more data is due to come out soon. But already we are attracting attention and interest. Just last week for example, we announced that the Government of Québec and the Canadian Cancer Society granted a total of $1.4 million to support the development of our platform.I want you to know that we have an aggressive timeframe for the development of our oncology platform. In fact, we intend to initiate human trials in 2020 in view of obtaining proof-of-concept in 2021 in ovarian and triple negative breast cancers. There is currently a huge unmet medical need for these two types of cancers and our targeted platform could very well be part of the answer to this need.As we are about to be listed on NASDAQ, there is no doubt in my mind that the analysts and the investors who closely follow a number of biotechs in the U.S. will be interested and excited about our story. It is obvious that we have a lot we can showcase to them. In fact, in addition to having a great R&D pipeline, we are commercial stage biopharmaceutical company with two products generating growing revenues.To make sure that our message is heard and understood, we have already increased our efforts on the investor relations side. We have already announced the hiring an investor relations firm in the U.S. to help us expand our reach in that territory. Furthermore, we have decided to proceed with the hiring of a U.S. based internal investor relations person.Finally, we will hold an investor day session in New York City on October 23rd which will have a strong focus on our development pipeline. This will be a great opportunity to present the very latest on our research pipeline including NASH and our targeted oncology platform. To ensure that the clinical potential for both programs is fully understood, we will have Dr. Steve Grinspoon and Dr. Richard Béliveau as guest speakers to present the science and the results that have been obtained thus far.I hope this gives you some perspective on what is in store for Theratechnologies. In fact we will finish the year with substantial revenue growth compared to last year. We are making the right moves to generate and accelerate growth in the short term, but we are also building a tremendous future for this company.I will now let Philippe present our results for the third quarter and I will come back after Philippe. Philippe?

[Philippe Dubuc:]

Thank you and good morning everyone. As Luc alluded to, third quarter sales continue to show solid growth. Our third quarter consolidated revenues were up 19.2% compared to the same quarter last year and reached $16.1 million. If we compare year-to-date results, revenue growth reached 50% over last year's comparable nine-month period with sales reaching $46.8 million compared to $31.2 million.Looking at sales by product, third quarter sales of EGRIFTA stood at $9.1 million compared to $9.8 million last year. Nevertheless, they were up by $0.5 million compared to Q2 of 2019. We continued to anticipate a return to growth for EGRIFTA in the coming quarters with numerous catalysts on the horizon beginning with the launch of EGRIFTA SV in the next few weeks. In addition to being a more convenient product for patients, it provides us with much lower rebates to public payers and higher gross margins.We also recently announced a deal with the AIDS Drug Assistance Program or ADAP, which should broaden reimbursement coverage for EGRIFTA SV and are awaiting a peer reviewed publication of Dr. Grinspoon's NASH study results.As for Trogarzo, while unit sales at pharmacies were up 6% from Q2 to Q3, revenues were essentially unchanged at $6.9 million in the third quarter of 2019 over the second quarter, mostly due to temporary inventory adjustments at the distributor level. Compared to Q3 of last year, revenues were up 86.5% in dollar terms.As Luc said earlier, we are making adjustments and implementing new initiatives that will support growth over the coming quarters and help us reach our objective of generating peak sales of at least five times current sales of EGRIFTA.As I mentioned during the last quarter, we made a payment of $3.5 million to TaiMed in Q3, having reached a first commercial milestone of $20 million in sales over the past four quarters. Cost of goods sold in the third quarter of 2019 amounted to $5.2 million, up from $3.3 million for the same quarter last year. This increase is mostly due to the growth of Trogarzo sales and to overall increased sales in the U.S.As for R&D expenses, they remain stable at $2.1 million in Q3 2019 compared to the same quarter last year, while more expenses were recorded for regulatory and prelaunch activities in Europe, as well as activities for the development of our oncology platform, they were offset by the savings resulting from the release by the FDA of our post-approval commitments for EGRIFTA.Selling and market development expenses increased to $6.3 million compared to $5.1 million last year. This is a reflection of increased activities in both the U.S. and Europe. General and administrative expenses grew to $1.8 million in the third quarter of 2019, compared to $1.5 million last year.This is again a fast -- factor of our growing presence in Europe, but it is also related to our NASDAQ listing and increased investor relations effort in the U.S. We recorded a positive adjusted EBITDA of approximately $1.6 million in Q3 2019, compared to $2.1 million last year.In Q3, 2019 finance costs amounted to $1.25 million compared to $1.24 million last year. Finance costs were somewhat offset by finance income of $253,000 due to our higher cash and equivalents balances for the quarter.For the third quarter of 2019 we recorded a net loss of $1.6 million or $0.02 per share compared to a net profit of $282,000 or $0.00 per share for the same period last year when we recorded an income tax reversal of $1.3 million related to the issuance of our convertible debentures.Operating activities generated close to $1 million in cash flow during the quarter and changes in working capital items generated an additional $3.6 million. Inventory levels were stable while accounts receivables decreased and payables were slightly higher than at the end of the previous quarter. And despite the $3.5 million payment to TaiMed for the first commercial milestone, our financial position remained strong and increased from the second quarter of 2019 to $44.1 million in cash and bonds at the end of the third quarter compared to $43 million at the end of the second quarter of this year.Finally, I'd like to take this opportunity to announce that our common shares will begin trading on NASDAQ on Thursday October 10 which should help increase our profile with U.S. Investors and eventually lead to higher liquidity for our shares, which in turn should help our stock price reflect the value of Theratechnologies.On this, I will now turn to Luc for his closing remarks.

[Luc Tanguay:]

Thank you, Philippe. And I am excited with what I see coming for our company. We have two great products, and I'm very confident that they will keep bringing increasing revenues over the coming quarters. We are an agile company which reacts and adapts quickly. An illustration of this is our decision to expand the social media campaign through the 10 largest cities in the U.S. given the results obtained with our pilot program.We can also expect revenue to gradually build up due to the European approval of Trogarzo, the increased marketing activities for Trogarzo in the U.S., and the upcoming launch of EGRIFTA SV. In the meantime, we are working on new formulation for EGRIFTA and Trogarzo. As you know, we are working on the slow push for Trogarzo and on the F8 formulation for EGRIFTA. In addition, we have a great research pipeline with the clinical development of EGRIFTA for the treatment of NASH in HIV patients and our targeted oncology platform which hold tremendous potential.In just few days, our shares will be traded on NASDAQ. Through our increased efforts in investor relations we will certainly attract more attention to the amazing story we have to tell about our company. More than ever, the whole team is excited about what can be accomplished at Theratechnologies with everything that we have ongoing.I want to thank you all for being on the call today and we'll now take questions from the financial analysts.

[Operator:]

[Operator Instructions] Your first question comes from the line of Brian Abrahams from RBC Capital Markets. Your line is open.

[Luc Tanguay:]

Hi, Brian.

[Philippe Dubuc:]

Hey there.

[Brian Abrahams:]

Hi, thanks so much for taking my questions. I guess on the, I was curious a little bit more in the dynamics underlying the Trogarzo unit growth of 6% and the degree to which that's being driven by new patient starts or are you seeing -- I guess what are you seeing by way of compliance? Is there sort of a steady cohort of patients who are remaining on the drug that you're kind of adding on to with new patients every quarter or are you seeing a large number of new patients and then, but some patients coming off of therapy?

[Luc Tanguay:]

I have Jovan Antunovic with me which is our Commercial Officer. Jovan do you want to answer that and maybe I can add to this also?

[Jovan Antunovic:]

So, Brian yes. We are seeing that the growth is coming from new patients. We've always said that we have a strong retention rate and that continues to be the case, and that coupled with the higher reimbursement is driving the growth that we're seeing.

[Brian Abrahams:]

Got it and then I would love to hear a little bit more about, I guess what the most encouraging things you guys are starting to see from some of the enhanced marketing efforts like social media, and the DTC campaign, when you might expect to see more pull through as those efforts expand? And then, I guess sort of as a corollary to that, the slow push formulation, what are the timelines there? What still needs to be done and how much do you expect that would impact future adoption?

[Luc Tanguay:]

Jovan?

[Jovan Antunovic:]

Sure. So on social media question first, Brian, what we did is we launched pilots for both EGRIFTA and Trogarzo and what we have seen is that positive signals from both the standpoint of activity on our website, but also more importantly in terms of enrollments which led us to expand the pilot project to a total of 10 different cities for both brands. As it relates to the IM, I'll pass the question over to Christian.

[Christian Marsolais:]

For the IM at the moment we'll be completing the IV bolus, but for the IM we will probably initiate or submit something for the FDA to initiate the program later after the IV bolus is completed.

[Brian Abrahams:]

Got it. One last question from me then, just curious as you guys look to your upcoming regulatory discussions for EGRIFTA in NASH. I'm just curious if you could maybe frame what your latest base case is for the trial design that you guys would likely want to go forward with? Thanks.

[Christian Marsolais:]

Yes Brian, it will be difficult at this stage, because we haven't completed the interaction with the FDA. But what I can say is that we have some interaction with expert in NASH. We also had interaction with HIV patient advocates that are very interested in the indication. We will be submitting our package in the coming weeks to interact with the FDA and EMA and we will most likely have the meeting with those two agencies at the beginning of next year. And it is -- the plan as we have mentioned, we think we can do something with a relatively small number of patients too for the NASH indication in HIV patients, and everything is progressing very well at the moment, and we'll probably be able to come back to you in the first quarter after the interaction with the FDA and EMA.

[Brian Abrahams:]

Thanks so much.

[Operator:]

[Operator Instructions] Your next question comes from the line of Endri Leno with National Bank. Your line is open.

[Luc Tanguay:]

Hi Endri.

[Endri Leno:]

Hi, good morning. Thanks for taking my questions. Just a couple from me. I mean, first, what was driving the decline in EGRIFTA quarter - well year-over-year at least?

[Luc Tanguay:]

What drives the decline you said?

[Endri Leno:]

Yes, yes, yes.

[Luc Tanguay:]

I think there is no specific answer to that Endri. It is just that this drug is on the market for 10 years now. We also put a lot of effort in the last two, three quarters on Trogarzo. That being said, we are pretty much in line with our [budget] [ph] for EGRIFTA this year. I think we've put a lot of hope and we're very positive on the outcome that we might have with EGRIFTA SV. So we're just preparing the market for this. So the efforts in the last two, three quarters were mostly on Trogarzo. That being said, we're quite in line with our budget for EGRIFTA this year.

[Endri Leno:]

Okay, great. Thank you. And have you had any initial discussions for EGRIFTA SV and what has the reception or initial feedback has been?

[Luc Tanguay:]

We have, as I say we trained our sales force a week and half ago and we’re very excited about the project. And I think if you look at all the advantages that we have with this new formulation for the patients that we have currently on the drug, it is very good news. I think we'll have a quick response on transferring to the new program and also we think that we will be able to convince new patients to use EGRIFTA SV. And Christian would like to add something on this.

[Christian Marsolais:]

Endri, we, as you know, there is a non-HIV NASH study ongoing at the moment in the U.S. with Dr. Takara Stanley who is a colleague of Dr. Grinspoon and they are using the SV in that trial and the feedback that we have from her and the patient is that this product is much easier to use and much more comfortable for the patient to some extent. The difference in the volume of administration from 2 to 0.35, as well as the smaller needle makes it much easier for the patients.

[Endri Leno:]

Great, thank you very much for that. And just switching gears a little bit to Trogarzo in Europe. I was wondering whether you've had any initial discussions on reimbursements there, especially in the countries where the AIP is ongoing and when would you expect discussions to really begin in earnest for reimbursement.

[Christian Marsolais:]

We have had early discussion with -- on reimbursement, but it's really too early to get into the detail of that. We have a very busy schedule in terms of talking to different country agency about that in the first quarter of next year. So we're just -- it has been approved on the 26th of September and discussion and pricing as you know usually starts after that. So it is [indiscernible] of what we have at this point, but we -- as I say, we have a pretty good team already in place working for us in Europe on this and we believe that on the country-by-country basis in the next 12 months, we'll be able to negotiate with at least the big five in Europe in this regard.

[Endri Leno:]

Great, thank you very much. That's it from me.

[Luc Tanguay:]

Thank you, Endri.

[Operator:]

And there are no further questions at this time. I will turn the call back over to the presenters.

[Luc Tanguay:]

Well, thank you. If there are no more questions at this time we will conclude our earnings conference call for third quarter. On behalf of everyone here at Theratechnologies I would like to thank you for being on the call today. Have a great day.

[Operator:]

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