Theratechnologies Inc.
Q4 2019 Earnings Call Transcript

Published: 25 Feb 2020

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the 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, February 25th, 2020 at 8

[Denis Boucher:]

Well, 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 Mr. Tanguay 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 this press release issued this morning and to its annual information form dated February 24th of 2020, and the Risk Factors section therein available at www.sedar.com and on EDGAR as an exhibit to our report on form 40-F under Theratechnologies' public filings.Forward-looking statements represent Theratechnologies' expectations as of February 25th, 2020. 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 taking the time to be on the call today. Some may have noticed that our call is being held a week later than usual. This is due to the additional time needed for the U.S. auditing require now that we are listed on NASDAQ.Our last fiscal year was one of many accomplishments. In the last 12 months we managed to obtain approval for Kroger's in Europe to launch a new formulation of EGRIFTA to list our shares on NASDAQ to grow our revenue by 40% reaching over US$63 million to acquire a unique and highly promising technology platform in oncology to announce our intention to launch the development program of tesamorelin for the treatment of NASH and HIV and to manage record, a record slightly positive EBITDA while investing significantly in Europe in our development programs.So let me now talk about our sales for a moment. After our first full year of commercialization of Trogarzo we ended just shy of US$28 million in sales for this product.As it is the case with most product launches some key learning were made since we launched Trogarzo. As a result we make some adjustments last year to our setting approach for what is a unique interesting class treatment. We adapted our messaging based on feedback received from the field.We increased our presence on social media and we implemented a pilot direct customer campaign that we decided to expand based on the result obtained just to name a few.We started to observe the impact of those changes during the fourth quarter with the quarter-over-quarter unit sales increased by increasing by more than 14 %. As far EGRIFTA sales, we did register some growth in terms of unit sales but revenue were slightly down due to our circumstance out of our control as Phillip will explain in a moment.Nevertheless, we expect growth to resume in terms of units and revenue given the introduction of a EGRIFTA SV last November. EGRIFTA will remain a substantial revenue contributor with the introduction of the new SV formulation and after only few weeks on the market the conversion rate from EGRIFTA to EGRIFTA SV is going according to plan.As part of our plan to generate growth for both products, we increase and redeployed our salesforce to cover territories differently. We concluded that we will be better served by making territories smaller and by having few more sales representatives thus allowing our sales force to spend less time traveling and more time detailing.The organization will also be supported by two additional Medical Science Liaison or MSLs. Trogarzo and EGRIFTA where product which require in-depth scientific discussions with physicians. Having a team of nine MSLs will allow the company to reach more physicians more frequently which is essential.As an example, Medical Science Liaison staff can discuss the most recent result published in the Lindsey HIV journal on the effect of tesamorelin in HIV patient with NAFLD NASH. In addition, more efforts will be made with patient organization. As you know in HIV, patient play a pivotal role in the care they receive and in treatment decisions made by physicians.We must ensure that patients are equipped with the right tools to have meaningful discussions with their physicians. We already talked about our initiative on social media and on the web. Our analysis allows us to conclude that this is having a positive impact as we observe more traffic on our product related websites.Now let's turn to Europe. As you know, Trogarzo was approved last September while we already have patient treated in other through early access program commercialization will in fact start when we obtain reimbursement in key countries.Our team in Europe is working to ensure that we secure a price which will be optimal to support reimbursement. One will think that the process will be simple giving the European Union but in fact each and every country has its own review process and set of criteria for reimbursement. To that end, our European team is working closely with external consultants with vast expertise across Europe.You can now foresee the kind of efforts that will be required over the next few months and I have every faith in the team in place to make it happen and to initiate commercialization of Trogarzo in the first country this year with more countries to come thereafter.As I said, we are already recording revenues in Europe as some patient are being treated through early access program in some European countries. Our European team will also play a key role in supporting the development of our pipeline which I will discuss in just a moment.On the manufacturing side for both Trogarzo and EGRIFTA, everything is running smoothly. The current Covid-19 outbreak in China does not represent an issue for the sales in the U.S. In fact, we have enough inventory at our distributor and at time in North America to meet market demand for several quarters. Of course we will continue to monitor the long-term situation.Everything I just talked about provide the basis for the revenue guidance we issued on December '19 forecasting between US$83 and US$87 in sales. As you know, our approach is to keep growing the company through a well laid out plan. We started implementing this plan six years ago when we regain commercial rights to EGRIFTA back in 2014.EGRIFTA gave us a strong foundation for growth Theratechnologies. EGRIFTA or more precisely tesamorelin is also now playing a role in our long-term plans for the company. Our last year was not just about sales, it was also about rebuilding our pipeline for the mid and long term future of the company.Last June, we announced our intent to pursue the development of tesamorelin for the treatment of NAFLD NASH in people living with HIV. The decision was made was based on very positive results study conducted by Dr. Steven Grinspoon showing the effect of tesamorelin on liver fat and liver cirrhosis.In fact, the study result were so impressive that they were published in the Lancet HIV journal which also published an editorial on the significance of those results. To help us in the development of tesamorelin in NAFLD NASH, we signed a long term agreement with MGH and with Dr. Steven Grinspoon.The MGH through Dr. Steven Grinspoon who is chief of the hospital's Metabolism Unit will assist us in the study design selection of optimal patient population, dosing, study duration and other safety matter and to participate if need be in the regulatory meeting with the FDA or DMA.As we explained tesamorelin is the only product currently under development for the treatment of NASH and HIV patient, this give us a strong strategic advantage in term of competition, pricing and also safety as the product has been in the market for about 10-years. This is a market much larger than lipodystrophy in the clinical significance of NAFLD NASH is widely recognized.In fact, NAFLD NASH is reaching epidemic proportions in the U.S. and HIV patients are particularly affected representing a sizable opportunity for us. We submitted a Type-C meeting requests with the FDA to validate some aspect of the Phase 3 trial. The FDA advise us that they will reply to our questions in writing as they have for our oncology program.We expect to hear back from the FDA in Q2 of this year. If the FDA position is favorable, we will then complete our Phase 3 protocol in order to initiate as planned the trial by the end of this year.In the meantime, we are advancing with the bioequivalence study of the F8 formulation which we will intend to use in NAFLD NASH. We just completed the pilot study which means that we should be in a position to move forward with a confirmatory bioequivalent study in Q2.Of course the other great opportunity for Theratechnologies lies in the oncology platform we acquire exactly one year ago today. We made a great transaction from a financial perspective but more importantly we acquire technology which could have a major impact on cancer treatment.The in Vivo and in Vitro result that has been presented so far are impressive to say the least and more study results will be presented this year at major scientific meetings. This give us a great deal of enthusiasm and we look forward to initiating our first trial in human. Our goal remain to reach that stage by the end of the year and we are still on target.Another important decision for us last year was to list our common share on NASDAQ. Given where our company is now in its evolution it became clear that we need them to attract more attention from the US-based analysts and investors. To assist us in our effort to expand our presence with the U.S. based investors and analysts and pleased to announce that we have hired a senior director investor relation to be based in the U.S.This professional will soon be joining us after spending a number of years at one of the largest global U.S. biotech company. So on that note I will now let Philippe present our results and I will come back after for few closing remarks. Philippe?

[Philippe Dubuc:]

Thank You, Luc. Good morning, everyone. I'm pleased to provide you with our 2019 year-end results. During the past year we recorded net sales revenue of $63.2 million which represents an increase of 40% over 2018. Looking at EGRIFTA sales first, net sales were impacted by an unexpected charge related to government rebates not previously recorded by one of our distributing pharmacies.A portion of the unit sold to this pharmacy were previously incorrectly identified by the pharmacy as commercial patients. In fact, they were government reimbursed patients thus eligible to rebates. This adjustment was made to sales going back to 2017 and amounted close to $800,000. As a result, we recorded $35.5 million of EGRIFTA net sales in 2019 compared to $36.3 million in 2018.We are confident that the launch of EGRIFTA SV in late 2019 will have a positive impact on net sales in 2020 and beyond.Moving to Trogarzo, net sales were up 212% in 2019 compared to 2018. Sales amounted to $27.7 million in 2019 in comparison to $8.9 million last year. As Luc mentioned, Trogarzo sales are still growing at a sustained pace and we expect that the trend will continue over the coming quarters.In fact, unit sales in the fourth quarter increased by approximately 14% over Q3 of 2019. Growing Trogarzo sales in 2019 helped us record a slightly positive EBITDA of $323,000 despite our increased investments in Europe and higher R&D expenses related to the initiation of several development projects for tesamorelin and our oncology program.The unexpected rebate on EGRIFTA and the cost associated with the listing of our common shares on NASDAQ also affected our EBITDA. Cost of sales increased to $26 million in 2019 from $13.2 million the year before. Higher cost of sales is a reflection of increased Trogarzo sales which carry a higher cost of goods sold and the amortization of the asset related to the EGRIFTA transaction in 2018.Selling expenses were also higher in 2019. The increase is largely associated with the preparation work related to the approval of Trogarzo in Europe, the launch of EGRIFTA SV and the direct-to-consumer campaigns for both EGRIFTA and Trogarzo in the United States.In 2019, selling expenses reached $26.4 million compared to $21.6 million in 2018. Selling expenses also include a non-cash amortization of $2.4 million for the intangible asset value associated with the EGRIFTA and Trogarzo commercialization rights. In 2018, this amount represented $1.7 million or $700,000 less.In 2019, R&D expenses increased to $10.8 million compared to $8 million in 2018. The increase in R&D expenses is largely due to regulatory and medical activities in Europe on EGRIFTA SV in the U.S. and to investments in the oncology program.These increased costs were partially offset by the decision of the FDA to release Theratechnologies from its last post approval commitments relating to EGRIFTA.R&D expenses also include medical affairs initiatives aimed at raising awareness among physicians and nurses who interact with patients living with multi-drug resistant HIV and lipodystrophy in addition to regulatory affairs activities such as handling of the European filing of Trogarzo and quality assurance.General and administrative expenses grew to $8.3 million in 2019 compared to $5.8 million in 2018 as a result of business growth, increased activity in Europe, the listing on NASDAQ and additional investor relations initiatives. Financial expenses for the year were $5.1 million which included a non-cash accretion expense of $1.7 million and were offset by finance income of $1.1 million.In 2019, we recorded a net loss of $12.5 million or $0.16 per share compared to a net loss of $4.7 million or $0.06 per share in 2018. Our operations use $3.4 million in cash in 2019 which was mostly due to changes in operating assets and liabilities.Other uses of cash were the payment of interest on our outstanding convertible debentures, the payment of a $3.5 million commercial milestone to time it and the acquisition of Katana in February 2019. We ended the year with a healthy cash balance of over $41 million.Now looking at our Q4 numbers, total net sales reached $60.4 million representing an increase of 18% compared to the same quarter of 2018 when sales amounted to $13.9 million. As previously mentioned, sales of EGRIFTA were negatively impacted due to government rebates not previously recorded by one of our distributors.In the fourth quarter of 2019, EGRIFTA net sales amounted to $8.7 million compared to $9.7 million last year. However, unit sales to our distributor were actually up by close to 5% in the fourth quarter compared to Q4 of last year. Trogarzo sales in Q4 2019 were $7.7 million compared to $4.3 million last year an increase of 79% and we're up an 11.5% compared to Q3 of this year.Cost of sales in Q4 2019 was also up and reached $7 million compared to $4.8 million for the same quarter last year. The increase is mostly due to the growth in Trogarzo sales which carry a lower gross margin than EGRIFTA. R&D expenses increased to $3.8 million in the quarter compared to $2 million for the same quarter last year.This increase is largely due to investments towards the approval of Trogarzo in Europe, the development of our newly acquired oncology platform, regulatory expenses related to the development of tesamorelin for the treatment of NASH in people living with HIV as well as medical activities related to Trogarzo.For the three-month period ended November 30th 2019, selling expenses were up to $7.7 million compared to $5.2 million for the same period last year. The increase in selling expenses is largely associated with the preparation work related to the approval and launch of Trogarzo in Europe, the launch of EGRIFTA SV and the direct-to-consumer campaigns in the United States.G&A expenses represented $3.3 million in the last quarter of 2019 compared to $1.9 million for the same quarter last year. As previously explained, the increase is mainly associated with business growth listing of our common shares on the NASDAQ and the expansion in Europe.In Q4 2019, we recorded a $1.2 million in finance costs compared to $1.3 million in Q4 2018. We recorded a negative EBITDA of $3.2 million in Q4 compared to a positive EBITDA of $2 million in Q4 2018.This difference is mainly due to the ramp-up of our European activities and the additional spending related to our NASH and oncology R&D programs also contributing to the decrease is the negative impact on net sales of the unexpected rebates on EGRIFTA.On a final note, I would like to comment on the agreements we recently signed with the MGH and Dr. Grinspoon. The consulting agreement will run for three years and will secure access to Dr. Grinspoon and his lab especially with respect to the plan development of tesamorelin in NASH for HIV patients.The license agreement calls for milestones related to the progression of the Phase 3 program and royalties of EGRIFTA following the receipt of approval for the treatment of NASH in HIV patients. The rate of royalty will be in the low-single digits and will only be on sales above a certain threshold reflecting the additional contribution of the NASH indication.On this, I will now turn it to Luc for his closing remarks.

[Luc Tanguay:]

Thank you, Philippe. We'll say that 2019 was a transition year for Theratechnologies. While sales grew by 40%, we implemented and delivered on key mid and long term strategic objectives.In one year, we're able to rebuild our pipeline with our new program for tesamorelin in NAFLD NASH and with a technology which holds great potential in oncology. We are now listed on NASDAQ which will help us to reach new investor & analyst in the U.S. in preparation for the European launch of Trogarzo we built our infrastructure by hiring talented people.We also managed to launch EGRIFTA SV in the U.S. It's clear now that in 2020, our job will be to deliver on our revenue guidance while moving ahead with our clinical trials for NAFLD NASH and for our first compound in oncology. We have a busy year and a promising year in front of us.I can assure you that the entire team is ready and is up to the challenge. So, I want to thank you all for being on the call today and we will now take questions from the financial analysts.

[Operator:]

[Operator Instructions] Your first question comes from the line of Edward Nash from Canaccord Genuity. Your line is now open.

[Edward Nash:]

Great. Thanks very much and congratulations guys on the progress you've made over 2019 and then thank you for taking my questions.

[Luc Tanguay:]

Thanks, Ed.

[Edward Nash:]

I think here that you had mentioned in the U.S. that there were nine MSLs and that you're targeting for smaller territories. I just might have missed if you said it. So, how many reps will that now mean that you will have in the U.S. with the smaller territories?

[Luc Tanguay:]

Yes, I'll ask Jovan Antunovic our Chief Commercial Officer is with us this hour. I'll let that he speak on this if you want.

[Jovan Antunovic:]

Sure Luc, thank you. And thanks for the question, Edward. We have 34 terms -- 34 territories in the U.S.

[Edward Nash:]

34, okay perfect. And then, with regard to the EU, how is that -- what do you have there right now. I know, obviously that it will change as you get more countries once pricing has been established in additional countries but right now what is the -- what do you have there on the ground?

[Luc Tanguay:]

Okay. We have nine people at our head office in Dublin covering QC regulatory, finance of course, commercial. So, we have different function there. And we also have an in the field at this point for MSLs and we intend to increase that number this and maybe by two more MSL depending on how fast it's going with the reimbursement process in each countries.But the intent is to as soon as we launch a process in one country is to have someone in the field to make noise about the product.

[Edward Nash:]

Okay. And I'm sorry, you're going to rely only on MSLs in the EU territories?

[Philippe Dubuc:]

No, eventually we'll have Kansas, well once we are approved but during the periods where we negotiate with the, because some countries might be long. So, during that period, I think the only think we are allowed to is to discuss science and the problem.So, it just --.

[Luc Tanguay:]

I mean just to clarify, we are with the MSL we're hired last fall, then there are a number of activities, they call it advisor meeting and the different countries that have been initiated. And we also have a medical director based in Dublin. Then the medical team at the moment is very active in there.And maybe Jovan will like to add something as well on this.

[Jovan Antunovic:]

Yes. So, just a general comment, Ed. Europe and the U.S. are quite different. Europe is very much socialized medicine. So, I don’t think you'd be looking to use a competitor of the Europeans, and the U.S. structure with the European commercial structure. That's my only comment.

[Edward Nash:]

Oh, yes. Then that I knew that, I was just absolutely this was kind of curious which you had there already though but thanks so much.And I guess this is a question for Philippe, is just trying to -- how should we be thinking about the R&D line through 2020 given I assume that the oncology program will start to make more headwind on the clinical side.So, what should we think there on the numbers?

[Philippe Dubuc:]

Well, R&D obviously is going to go up this year and it's mostly related to both program. Obviously, we'll wait to see to hear from the FDA as to what kind of study we can design the NASH and HIV. But both programs will be ramping up and it's mostly in 2021 where the expenses will really kick in.

[Edward Nash:]

Okay great, thanks very much.

[Luc Tanguay:]

I just wanted to add that our target this year, in term of the EBITDA is to be around cash neutral. So, around the zero number plus or minus few millions but we want to keep good financial position this year. That's our target there.

[Edward Nash:]

Fantastic, understood. Thanks very much, guys. And again, thanks for the overall update.

[Luc Tanguay:]

Welcome, Edward.

[Operator:]

Your next question comes from the line of Andre Uddin with Mackie Research Capital Corp. Your line is now open.

[Luc Tanguay:]

Hi, Andre.

[Philippe Dubuc:]

Good morning.

[Andre Uddin:]

Hi Luc, hi Philippe. Just a quick couple of questions here for you. What is the current pricing of both EGRIFTA formulations, is it the same right now?

[Philippe Dubuc:]

Yes. The price for both product are exactly the same price here. So, wanted to avoid any issue with the figures on this.

[Andre Uddin:]

And what is the pricing?

[Philippe Dubuc:]

It's currently it's 5300 per month. Yes, rolls of course.

[Andre Uddin:]

Alright. And should we expect about a 5% increase in pricing?

[Philippe Dubuc:]

We will.

[Luc Tanguay:]

Yes, we will have an increase this year which will be in the single digit, yes.

[Andre Uddin:]

Okay.

[Luc Tanguay:]

Five is a good guess, might be a little bit higher than that, yes.

[Andre Uddin:]

Okay. And also could you just talk a little bit about the switch strategy within U.S. be, a formulation how that's going and if you could just talk a little bit about that?

[Luc Tanguay:]

Yovan, you can answer on this?

[Jovan Antunovic:]

Sure. I think what we're planning for is what we've done so far is we've put a lot of emphasis on ensuring insurance coverage with both the commercial payers as well as the public payers.We are essentially focusing all our commercial activities and messaging around the new SV formulation. And that relates back to all the activities that we're doing around EPC digital campaigns, any activities that are being done with the camp team.And a key part of it is that when we've trained our salesforce, we've trained them to not go into the offices and compare it to the EGRIFTA formulation. So, essentially we're going in and launching this like a new product which it is.

[Andre Uddin:]

Okay. And just in terms of also your NASH trial, have you given that any more thought in terms of I know you're going to be running a Phase 3 trial for HIV patients is again have you thought about running another in just NASH patients?

[Luc Tanguay:]

We haven’t concluded it yet for going outside HIV. I think the focus this year is really to be on HIV. We think as I mentioned in my speech that we have very favorable position in term of fund addition, pricing, the fact that we are in that field with no side effect for 10-years.I think we have a look at this to be at the moment in depth in HIV only. We don’t put aside the fact that we could at some point go outside the HIV but I think we want to in 2020 we really want for this and make sure we launch our Phase 3 trial this year.Then that's the idea, yes.

[Andre Uddin:]

Okay perfect, thank you.

[Luc Tanguay:]

Okay.

[Operator:]

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

[Unidentified Analyst:]

Hi it's Leonard on for Brian. Thanks for taking my question. I just have a quick one. We've Fostemsavir expected to launch in 2020. Can you speak to how you might expect the competitive landscape to evolve and how that might shift your overall strategy? Thank you.

[Luc Tanguay:]

Jovan?

[Jovan Antunovic:]

Thank you for the question, Brian. I think we're expecting Fostemsavir for launch at some point in 2020. I think in the big picture, we expect that that will create some competition. However at the same time, we also expect that Fostemsavir will likely be paired with Trogarzo.So, we don’t expect there to be any negative impact to Trogarzo. Again, it's going to be adding another mechanism of action to more HIV patients. I think it's a positive overall. And we're ready and we're planning for the arrival of Fostemsavir both in the U.S. and in Europe.

[Unidentified Analyst:]

Thank you.

[Luc Tanguay:]

Something else, Brian?

[Unidentified Analyst:]

No, that's it from me. Thank you.

[Luc Tanguay:]

Yes, okay.

[Operator:]

There are no further questions at this time. I'll turn the call back over to the presenters.

[Luc Tanguay:]

Thank you, very much. Well, as there are no further question at this time. We will conclude the conference call. On behalf of everyone here at Theratechnologies, I would like to thank everyone for being on the call today.Have a very nice day.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.