Theratechnologies Inc.
Q1 2017 Earnings Call Transcript

Published: 6 Apr 2017

[Operator:]

Good morning ladies and gentlemen and thank you for standing by. Welcome to Theratechnologies earnings conference call for the first quarter of 2017. 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, Thursday, April 6 at 8

[Denis Boucher:]

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 open 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 may 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 press release issued this morning and to its annual information form dated February 07, 2017 and the Risk Factors section therein, available at www.sedar.com under Theratechnologies’ public filings. Forward-looking statements represent Theratechnologies’ expectations as of April 6, 2017. Except as maybe 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 Mr. Tanguay.

[Luc Tanguay:]

Thank you Denis. Good morning everyone and thank you for being with us today. We had the opportunity to discuss our plans, our strategic vision during the Investment Community Presentation we held on March 1, yet, much happened since then. In a few minutes, Philippe will go over our results for first quarter of this year. From the get go, I can say that I'm quite pleased with those results. We have said in the past that historically our first quarter was the weakest. While our first quarters will never be as strong as the other quarters in terms of total sales, we have implemented a series of marketing activities in late 2015 that started to have an impact in Q1 2016. This approach continued to work well for us as we experienced growth in Q1 2017 compared to Q1 2016. Indeed, in US dollars, net sales were up by 9% in Q1 2017 due to higher unit volumes and prices. As I said, Philippe will give you the detailed figures in just a few minutes, but I wanted to at least give you a preview of the situation with EGRIFTA because it provides the foundation for what is now such a source of excitement and enthusiasm namely Ibalizumab. The high level of confidence we had in Ibalizumab was again supported with new clinical trial results unveiled in mid February at the Conference on Retroviruses and Opportunistic Infections also known as CROI. Previous Phase III results demonstrated that after 24 weeks of treatment with Ibalizumab, the mean reduction in viral load was 1.6 logs from baseline and a total of 48% of the patients had reduction in viral load of more than 2 logs during that period. Results presented at CROI showed that patients enrolled in the study experienced a mean CD4 cell increase of 48 cells per microliter after 24 weeks. The CD4 cell increase was higher in patients with a count higher than 50 cells per microliter. Indeed the mean CD4 cells count increase in those patients was 77 cells per microliter. And as a reminder, CD4 cells are the foundation of our immune system. Those results again confirm that clinical usefulness of this product in the treatment of patient with multidrug resistance since the treatment goals of physicians are first to lower viral load and second to increase CD4 cell count, of course while minimizing treatment side effects. In addition, results unveiled reconfirm that Phase III result support the filing of Ibalizumab to the FDA. On that subject, TaiMed recently informed us that all sections of the filing have been completed and that electronic publishing to the FDA standard is underway, and the submission should be fully completed within two to three weeks at the most. As this is unfolding, we are actively preparing the potential launch of Ibalizumab. As we discussed in detail during our investment community presentation on March 1, we have been very active to ensure that we are ready to launch Ibalizumab if and when we receive approval. For example, we conducted qualitative and quantitative research to assess whether physicians were receptive to Ibalizumab messaging and to determine the patient population for the product. Our research confirmed that physicians treat patients with multidrug-resistant HIV-1 infection, recognize the challenges of treating those patients with options presently available. As such, a new drug with a new mechanism of action like Ibalizumab would be considered a very important treatment option. In terms of market size, our research confirmed that there are approximately 20,000 to 25,000 people with multidrug-resistance in the US. It is estimated that 50% to 56% of those patients will experience treatment failure over a 48-week period which represent a yearly addressable market in the US of between 10,000 and 12,000 patients. Importantly, research conducted among payers concluded that they expect to reimburse Ibalizumab. They also felt that based on the product attributes, it was assumed that it will be priced at a premium to other classes of anti-retrovirals currently available. Market research is just one of the many activities we had undertaken in the last little while to prepare for the launch of Ibalizumab. In addition to market research, we announced during our Investment Community Presentation on March 1 that we will be increasing the number of sales reps from 11 to 36. Our sales force used to cover 1,100 physicians. Most of our extended team has now been hired and fully trained. And as of this week, initiated calling 94% of the 5,000 most important US-based physicians in the field of HIV. The key focus in the near-term for the new sales force will be EGRIFTA. Should Ibalizumab be reviewed thoroughly by the FDA, the sales team will be ready to add this new product to their portfolio. I strongly believe that such an important investment in our sales force expansion will be beneficial for our company. Last but not least, we made yet another important announcement regarding Ibalizumab shortly after the end of the quarter. Indeed, we announced an agreement with TaiMed for the commercial rights to Ibalizumab in Europe and in Israel, Russia, Norway, and Switzerland. As you know, Europe represented single most important market after the US, and we recently initiated the development of our regulatory strategy for that territory. So on that note I will now let Philippe present our results for the first quarter of 2017, and I will come back at the end of his presentation. Philippe?

[Philippe Dubuc:]

Thank you and good morning everyone. As Luc just mentioned, Q1 results have usually been a bit more challenging in terms of EGRIFTA. I'm pleased to say that our increased marketing efforts are bearing fruit as we can see in the results obtained in Q1 2017. Indeed, we recorded revenues of 9,035,000 compared to approximately CAD8.7 million in Q1 2017. This represents an increase of 3%. It should be noted that the exchange rate did not play in our favor. If sales results were reported in US dollars, the increase would have come to 9%. Nevertheless, this represents our best first quarter ever. Increased revenues were fueled by a growing number of units sold at an increased selling price which was somewhat offset by higher discounts and patient assistance cost. Theratechnologies is committed to making its products available to largest number of patients and will continue to offer discounts to public payers and assistance programs to patients. This increase in revenues is particularly interesting and encouraging since we now have three times as many sales reps on the road detailing EGRIFTA. While the impact on revenue will not be immediate, we do anticipate an increase in sales this year from this expanded effort. Let me remind you that based on the impact of our larger sales force, we revise our revenue guidance upwards on March 1. We are now forecasting EGRIFTA sales to be in the range of CAD44 million to CAD46 million in 2017. Our previous target was between CAD40 million to CAD42 million. We also announced on March 1 that we were expecting our adjusted EBITDA to be in the range of minus 2 million to minus 3 million in 2017. This of course is the direct effect of the important investment we're making this year as we get ready for the launch of Ibalizumab. That being said, given our Q1 2017 revenues and despite increased expenses related to the potential launch of Ibalizumab we were able to generate an adjusted EBITDA of 725,000 compared to CAD1.1 million in Q1 of last year. In Q1 2017, cost of sales amounted to just over CAD2 million including almost 800,000 in royalties to EMD Serono versus only 348,000 in Q1 2016 when the royalty was payable during only two of the three months of the quarter. Q1 2017 cost of sales compares to approximately CAD1.4 million for the same quarter of last year. The actual cost of goods sold was slightly less than CAD1.1 million in Q1 2017 which represents 12% of sales which is unchanged from last year. Research and development expenses were up by CAD136,000 from Q1 2016. This is largely due to increased spending on medical affairs in support of raising awareness about EGRIFTA and preparing the potential launch of Ibalizumab. More precisely R&D expenses amounted to CAD2 million in Q1 2017 compared to slightly less than CAD1.9 million in Q1 of last year. While it may be seemed surprising, selling and market development expenses were down compared to the same quarter last year. This is mostly a factor of exchange rate variation as most of our sales and market development expenses are in US dollars. As a result, sales and market development expenses reached close to CAD3.8 million in Q1 2017 compared to CAD3.9 million in Q1 last year. General and administrative expenses grew slightly to CAD1.2 million this year in comparison to CAD1.1 million in Q1 2016. As for finance costs, they were once again impacted by the fair value of warrant liability. Our stock did very well in Q1 2017 and as a consequence the market value of our outstanding warrants went up substantially. This resulted in a CAD1.9 million loss to reflect the higher value of the warrant liability. This is a non-cash item and is strictly due to accounting. Therefore, finance costs amounted to CAD2.3 million in Q1 2017 compared to close to CAD700,000 in Q1 of last year. Of course, this accounting measure also impacted our earnings. Taking this non-cash item into account, we recorded a net loss of CAD2,243,000 or CAD0.03 per share in Q1 2017, compared to a net loss of CAD153,000 or $0.00 per share in Q1 2016. Cash flow generated from operating activities was more than CAD2.5 million in Q1 2017, up from CAD400,000 in Q1 of last year. Operations generated close to CAD700,000, while changes in operating assets and liabilities generated over CAD1.8 million. As a direct consequence of our public financing, which closed on December 5th of last year and cash generated by our operations, we ended the quarter with a strong cash position. At the end of Q1 2017, we had CAD29.6 million in cash and equivalents, compared to CAD11.6 million at the end of our last fiscal year. In addition to that amount and also as a result of the recent strong price increase in our common shares, 1,018,200 warrants have been exercised since the end of the quarter, generating over CAD3 million in cash proceeds. This cash position gives us all we need to aggressively pursue the opportunity afforded by ibalizumab. On that note, let me turn it back over to Luc who has some closing remarks.

[Luc Tanguay:]

Thank you, Philippe. The next few months promise to be very exciting for Theratechnologies. Firstly, we are preparing to launch ibalizumab, which you will agree with me represent a game changing product for us. To top it off, EGRIFTA will be the first to benefit from the recent sales force expansion we started to implement, giving us even more leverage. We were already extremely excited with the opportunity of launching ibalizumab in the US, but we are even more now that we have secured rights to the second most important market in the world. Commercial rights for Europe represent an important milestone for our organization, as it gives us the tool to sustain growth in the medium term and beyond. Good cash flow generated by EGRIFTA and our strong cash position give us the latitude we need to implement our launch plan for rights and more. As we have done so far with the US, we will approach the new world opportunity methodically to ensure that we give ourselves all that we need to successfully launch ibalizumab in that territory if approved of course. In the meantime, we are sparing no efforts to ensure that we will be ready in time to launch ibalizumab in the US. As I previously mentioned, TaiMed is completing the electronic publishing as we speak of the submission and filing with the FDA should be finalized in the next two to three weeks at the most. I want to thank you all for being on the call today and we will now take questions from financial analysts.

[Operator:]

[Operator Instructions] Your first question comes from the line of Neil Maruoka with Canaccord Genuity. Your line is open.

[Neil Maruoka:]

Hi. Good morning, guys. I wanted to focus on your partnership in Europe. I mean, this is going to be a new geography for you. Can you talk about what your plans are for the initial steps into your -- towards regulatory filing and towards building out a commercial infrastructure?

[Luc Tanguay:]

Okay. You have to note Neil that all I’m going to say is of course preliminary thought we have. First thing we’re going to do of course is working on the regulatory side of the filing in Europe. We already -- we are already working with consultants to see how we will address that market, and first thing we need to do is to meet with the authorities there to see if they can use the US file for the filing of ibalizumab for that territory. Of course, depending on the answer, this will have an effect on the timing as you know. If they accept the file as it is, it will be shorter, if we need, I mean TaiMed needs to do some small additional studies, it’s going to take a little bit longer. So, we’ll see after we talk to the authorities what are exactly the terms of the regulatory pathway here. So, that being said, on the commercial side, this will dictate of course how and when we will address the commercial approach for the European territory. Our type at the beginning for Europe is similar to the US. It’s probably going to be a combination of three things. What we don’t know yet is what is the proportion of each, but it’s going to be a three way approach. The first one of course will be definitely for us to have a very small presence in Europe. It’s farther than 1-hour flight. So we need to have maybe one or two, three people there from Theratechnologies. So we have a small team there. We like working with organizations like inVentiv, a commercial sales organization. So probably for the main countries there, we will work with such an organization; and probably for smaller territories, smaller countries, we might also use sub-distributor for that or getting to work with them, so some small partners. So what we don’t know yet is what exactly will be the proportion of each of those three approaches, but that’s our initial thought and how we will address that market. Is that answering your question Neil?

[Neil Maruoka:]

No, that's great. That's very helpful. Maybe just a follow on to that in terms of the market there and if you've done any research into that. Are there any differences in the physician treatment patterns for MDR HIV patients versus what you have seen and researched in the U.S.?

[Luc Tanguay:]

For that, I will ask Christian Marsolais, our Chief Medical Officer to answer to that.

[Christian Marsolais:]

Neil, in terms of the, we started to look at the numbers, in terms of the patients, the systems are slightly different in Europe and in the US, it’s more social system, more like in Canada, but in terms of the numbers, it’s probably a bit lower keeping all proportions together in terms of the population, but there is a significant number of MDR patients in Europe and something which will be a significant market and in terms of the treatment itself, very similar to what we have in the US.

[Luc Tanguay:]

Just to add, Neil, on the number, we have conducted some internal research to sustain what Christian is saying. Yes, the market opportunity in Europe in terms of patient is similar to the US, but we need to do in-depth market research in terms of that.

[Operator:]

[Operator Instructions] Your next question comes from the line of Endri Leno with National Bank. Please go ahead.

[Endri Leno:]

Hi, good morning. Thank you for taking my question. My question, I mean, it’s on ibalizumab, I was just wondering primarily with the launch in the US, I mean now that you've completed hiring the salesforce, what are your next steps, and I mean what are your thoughts and I mean have you made any progress on them and what are the next steps?

[Luc Tanguay:]

The next step, as I said in my speech of course is coming from TaiMed, it will file or complete the filing because it's already started the BLA with the FDA in the coming weeks, two or three weeks at the most. So that’s an extent. That being said, commercial, we are working on of course training of the sales force, of course, they're going to work on EGRIFTA, but they need to be trained. We need to work on pricing. We're working on that with different consultants, so to be ready to fix the price as soon as the decision from the FDA is coming in. Work on all the material, we need to commercialize the product. What we're doing at this point, we increased our MSL team to start talking about the multidrug resistant condition. So they're not talking about ibalizumab, but they're talking about the condition seeing who are the key opinion leaders, where we are doing a lot of scientific advisory boards with key opinion leaders to see what is their approach in treating those patients and so on. So there's a lot of ground work that is being done, and in order to be ready, when we'll have the green light from the FDA later this fall. Lyne will add something.

[Lyne Fortin:]

If I can just add, we're also approaching distribution partners because this is an infused medication. So we are setting up our distribution network for optimal access to all of the patients, whatever their circumstances are in terms of insurance coverage or ability to get to an infusion center. So we’re in that process as well.

[Endri Leno:]

Okay. Thank you. So, a bit more expanding on the distribution system, I mean does it have to come from the plan from the production, can you bring it in before there is an approval or while it’s being reviewed by the FDA or is it going to be more towards the end of that period?

[Luc Tanguay:]

Yes. I can answer the question. There's a possibility, there are guidelines that was developed by the FDA to be able to import all drugs in the US prior to the approval and that will be in discussion with the FDA and the goal and what we're aiming at is to ensure that we will be ready to label as soon as we get the approval from the FDA at the completion of the review. And the process is in place and we'll be able to mostly report directly. So our goal is to be of course ready as soon as it's approved. Of course, we'll still need to do final packaging. After it’s approved, we have to put some numbers that the FDA will provide to us at the when the decision will be taken, but we're doing everything to minimize that period between the approval and the launch. Our goal as we mentioned since the beginning of the year is to launch that product in 2017 and that's what we are positioned for as we speak.

[Operator:]

There are no further questions at this time. I turn the call back over to Mr. Denis Boucher.

[Denis Boucher:]

Well, thank you very much. At this time, 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. Thank you.

[Operator:]

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