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Summary

  • Theralase hopes to displace its current device with the next-generation TLC-2000 biofeedback laser therapeutic device that will be launched in Q4 2014 in Canada.
  • The clinical trials performed thus far with its Photo Dynamic Therapy (PDT) technology showed promising results for the treatment of cancer in animal models.
  • Further trials using this technology are ongoing, the results of which are expected in the coming year. We maintain our Outperform rating and a target price of $1.00/share.

What's new

Current treatment for cancer employs radiation therapy, which is painful and often results in recurrence of cancer cells in the affected area. Treatment modalities also burden the patient with numerous side effects. Theralase's Photo Dynamic Therapy (PDT) has anti-cancer therapy that not only destroys cancer cells in mice painlessly, but also prevents recurrence of the same cancer. If clinical trials on humans prove successful, this will be a considerable treatment benefit over existing therapeutic modalities.

Photo Dynamic Compounds (PDCs) are drugs that become activated when exposed to visible light, and become cytotoxic in oxygenated environments. Theralase's PDT division focuses on the use of PDCs, which when activated by their proprietary laser systems, have shown high anticancer effectiveness, microbial sterilization potency and bacterial infection control. Theralase has successfully completed in‐vitro analysis demonstrating destruction of brain, breast and colon cancer cell lines in 2010.

Bladder cancer has been chosen as Theralase's principal cancer target for its lead PDC compound. Theralase has been conducting research at the Princess Margret Cancer Center, University Health Network (UHN) on the in-licensed PDCs and its proprietary laser therapeutic technology to destroy cancer cells. Theralase PDCs have proven to be toxic to bladder cancer cells when activated by light (100% kill rate) at very low effective concentrations (micrograms). Thus far, the clinical trials indicated that the PDCs activated by laser light destroyed the cancer cells successfully in mice, and kept them cancer-free for over 20 months (the life span of a mouse).

More recently, Theralase pursued its research using PDT technology to determine the short and long-term immune response in mice post-treatment. In the short-term study, the same set of mice used in the initial clinical trials was re-injected with the identical cancer cells used in preliminary studies. 23 days post-PDT treatment, the cancer did not recur. For the long-term study, after 10 months post-PDT treatment, these same animals when injected for the third time with 350,000 cancer cells, did not develop cancer at the three-month follow up. The age-matched study consisted of mice that had previously never received PDT treatment or had the cancer cells injected. These mice, when injected with cancer cells, did not survive more than 1 month post-injection. Theralase announced on May 29, 2014 that the above-mentioned clinical trials at UHN showed that the PDCs activated by the laser light technology have the capability of not only destroying the cancer cells, but arresting the recurrence of the same cancer cell lines in mice. The results of this recent experiment are expected to be presented at the 37th Annual American Society for Photobiology conference to be held in San Diego, California in June 2014.

For now, the research is in the animal models. Theralase believes that its PDC technology to treat cancer may potentially address an unmet medical need. The commercial launch of the TLC-3000 PDC/Laser Technology Platform is likely to be at least a couple of years away. If the experiments are successful, and the research progresses towards human trials with positive results, we believe Theralase's valuation is bound to improve robustly. It might be worthwhile to keep a lookout on the significant developments this company has to offer.

Q1 2014 Financials

Theralase has been focusing its efforts on sustaining revenue from the TLC-1000 therapeutic laser device, increasing production of the TLC-2000 therapeutic laser device with biofeedback which is expected to roll out in Q4 2014, and working on the development of the Near-Infrared (NIR) PDT anti-cancer technology.

Revenue:
Sales continue to be generated primarily by the TLC-1000 device. Selling expenses accounted for 33.5% of revenue in Q1 2014. The company has invested significantly in advertising and marketing of its primary product, TLC-1000, in the first quarter, and anticipates continuing sales of the same for the remainder of the year. 65.5% of the total R&D expenditures have been spent on the research for the PDT technology towards the cancer vaccine research. If the research experiments give the expected positive results, then the company hopes to file an IND application in Q4 2014. The approval of the IND will permit Theralase to commence bladder cancer clinical trials in humans.

Cash:

Theralase had approximately $1.8 million in cash at the beginning of the year. During the first quarter of 2014, it has used up roughly $900,000 towards operating activities, resulting in about $1 million in cash at the end of Q1 2014. A bulk of the cash has been used towards pre-paid expenses and satisfying payables. Given the company has a high cash-burn rate, if Theralase is unable to generate sufficient revenue to cover its expenses, it might have to raise additional capital, which would have a dilutive effect on its EPS. Based on our financial projections, we anticipate Theralase will require about $600,000 to cover expenses such as SG&A and R&D. Given its current cash position of $900,000 we do not foresee any liquidity issues in the near term. However, in the long run, if the TLC 2000 sales are insufficient or the TLC 3000 device does not come to fruition, we could see Theralase suffer from a liquidity crunch, which would force it to raise additional capital in the market.

Financial Valuation

Theralase's TLC-2000 is a non-invasive, patent-protected, laser-based, reparative, biomedical platform technology next-generation product. The company expects to maintain exiting levels of revenue from its primary product, TLC-1000 (also a laser-based product that heals and cures tissue structures), in Q2 and Q3, and we expect a large increase in revenue from the roll-out of its next-generation therapeutic laser device, the TLC-2000, in Q4 2014. We project revenues in Q2 and Q3 to slow down as compared to Q1, as Theralase plans to phase out the sales of TLC-1000 as it displaces its own device with the TLC-2000. If the company is able to roll out the TLC-2000 device, as anticipated, in Q4 2014, we project better financial performance of more than $1 million in Q4 alone, based on management's estimates.

SG&A and COGS were in line with our projections for Q1 2014, and we expect them to remain level for rest of the year.

Theralase has been making progress towards commercialization of its PDT technology. We believe that its research is moving in the right direction. Completion of human clinical trials successfully will lead to commercializing the TLC-3000 device with PDCs, which may help the company achieve its fair value. At this time, we are not factoring the sales of this device into the revenue projections, as the research is still ongoing and there can be unforeseen delays in conducting clinical trials, as well as in obtaining regulatory approvals.

We maintain our recommendation as "buy/outperform" rating on TLTFF (TO: TLT.V) stocks.

Financial Model

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The 20-page full report on TLTFF can be accessed here.

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Theralase's PDCs Have Demonstrated Cancer Therapy With Memory Response