Theratechnologies Inc. (OTCPK:THERF) Q1 2016 Earnings Conference Call March 31, 2016 8:30 AM ET
Luc Tanguay - President, Chief Executive Officer
Philippe Dubuc - Senior Vice President, Chief Financial Officer
Lyne Fortin - Senior Vice President, Chief Commercial Officer
Christian Marsolais - Senior Vice President, Medical Affairs
Denis Boucher - Exocet Public Relations
Doug Loe - Euro Pacific
Neil Maruoka - Canaccord Genuity
Frederic Tremblay - National Bank
Good morning ladies and gentlemen and thank you for standing by. Welcome to Theratechnologies earnings conference call for the first quarter of fiscal year 2016. 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. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded today, Thursday, March 31, 2016 at 8:30 am Eastern time.
I would now like to turn the meeting over to Denis Boucher. Mr. Boucher, please go ahead.
Thank you and welcome. Mr. Luc Tanguay, President and Chief Executive Officer, Theratechnologies, and 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. Lyne Fortin and Christian Marsolais will also be available to answer questions of a more specific nature.
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 pay 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 24, 2016 and the Risk Factors section therein, available at www.sedar.com under Theratechnologies’ public filings. Forward-looking statements represent Theratechnologies’ expectations as of March 31, 2016. 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 Mr. Tanguay.
Thank you, Denis. Good morning everyone and thank you for being with us today. This morning, I would like to start by providing you with background and perspective on our last quarter. Philippe will then give more detailed information on our financial results, and I’ll come back after for closing remarks.
To start with, let me go over some of the last quarter highlights. From the outset, I must say that I’m quite pleased with what was achieved. Financial results showed that we avoided a reduction in revenues that was normally seen between the fourth and the first quarter. In the past, Q1 revenues were down by as much as 15 to 20% compared to the fourth quarter. This was not unique to EGRIFTA; in fact, other niche products in HIV were still affected this year. This time, our revenues were down by only 3% compared to the fourth quarter.
But revenues don’t tell us the whole story. First, it’s important to realize that while our revenues were 3% lower, our unit sales were up by 9% compared to Q4. If you will remember correctly, I mentioned during the last quarter’s conference call that our sales in Q4 were positively impacted by a reversal of provisions. Secondly, written prescriptions received at our call center increased by 30% from Q4 to Q1. As you probably know, written prescriptions are a lead indicator of future filled prescriptions.
[Indiscernible] on our financial results, I would like to highlight that as we continue to manage expenses responsibly, we recorded again a positive EBITDA and we completed the quarter improving our cash position. All of this to say that our new marketing initiatives are starting to pay off and that I’m convinced that they will continue to do so over the next quarters.
The changes we made in the last couple of years put us in a position of growth and leverage. Our two most recent announcements certainly confirm that the [indiscernible] of EGRIFTA into new markets is definitely part of the elements that gives leverage and growth potential. As such, the approval of the 1 milligram vial presentation in Mexico is an important and significant step in that direction.
The next step in that territory will be to apply for reimbursements with public payors. This is very important for the commercial success of EGRIFTA in Mexico as most HIV patients in that country are covered under public plans. Obviously finding new partners in other territories remains an objective for us in 2016.
Of course, the transaction we announced just a few days ago regarding the acquisition of the commercialization rights to ibalizumab in the United States and Canada is a great source of pride and enthusiasm as it constitutes a game changer for Theratechnologies and holds such great potential. As I said on the day of the announcement, this product is a perfect fit for us. I mentioned before that we wanted to remain focused on our core business, which means that finding a product that caters to the same patient population and the same treating physicians is ideal.
Remaining focused on our core business has several advantages. First of all, it allows us to leverage our infrastructure. We have a sales force in place that will eventually be in a position to detail two products instead of one, and the same can be said for the medical liaison team. In addition, it will help to build Theratechnologies’ reputation as a key player in niche treatments for HIV patients. Also important is the fact that we closed this transaction in a way that respects our financial capacity.
As early as the first half of 2017, ibalizumab could be on the market, thus offering a new option to patients that are in dire need. Let me remind you that the FDA granted the breakthrough therapy designation to ibalizumab based on previous clinical data. The FDA also granted it the orphan drug status based on the population of 38,000 patients that could benefit from this treatment.
Initially, we’ll focus our efforts on 8,000 to 10,000 patients who have multi-drug resistant HIV infections and who need new treatment options. Finally, we believe that this product once approved could rapidly generate revenues comparable to those of EGRIFTA. This means that we’ll be very busy over the next quarter as we continue of course to support the growth of EGRIFTA and as we start preparing the U.S. market for the approval of ibalizumab.
On that note, I will ask Philippe to give you more detail on our financial results for the last quarter, and I’ll come back after. Philippe?
Thank you, Luc. Net sales from EGRIFTA recorded in the first quarter of 2016 amounted to $8,741,000 compared to $4,567,000 for the same period last year. While this is a quite impressive increase, I must say that I’m also very pleased with the fact that we were able to avoid the usual decrease in sales that we normally saw from Q4 to Q1.
On the expenses front, cost of sales rose in tandem with higher sales volume compared to the same quarter of 2015. It amounted to $1.4 million in Q1 2016 compared to $641,000 in Q1 2015. As of January 2016, we began paying royalties to EMD Serono for sales of EGRIFTA in the United States. They are now included in cost of sales and amounted to $348,000 in the first quarter.
Cost of goods sold margins are stabilizing, reflecting smooth manufacturing operations. R&D expenses for the first quarter of 2016 came in at $1.9 million compared to $1.1 million for the same quarter last year. Compared to the previous quarter, R&D expenses were slightly higher, reflecting some of the activities we started implementing in Q4 2015, which Luc mentioned earlier. The increase comes from additional spending on medical affairs, which includes medical education programs aimed at increasing scientific awareness about EGRIFTA, and small changes in exchange rates since most of these activities occur in the United States.
The same can be said of selling and market development expenses, which also include initiatives to increase disease and product awareness in the marketplace. Given our intensified efforts, these expenses amounted to $3.9 million for the three month period ended February 29, 2016 compared to $2.5 million for the same period last year. This is slightly lower than the $4.3 million spent on selling and market development expenses in Q4 2015, reflecting the fact that we now have the necessary infrastructure to accommodate future growth in EGRIFTA sales.
General and administrative expenses for the first quarter of 2016 were quite similar in comparison to the first quarter of 2015. More precisely, they totaled $1.1 million, slightly up from $1 million for the same period last year. They were also lower than in Q4 2015 as they amounted to $1.2 million for that period.
As a result, we recorded an adjusted EBITDA of just over $1.1 million for the first three months of 2016. This compares to a negative adjusted EBITDA of $252,000 for the same period last year. For the quarter, we recorded a net loss of $158,000 compared to a net loss of $914,000 in Q1 2015.
I also want to point out that we ended the quarter with more liquidity than we had in the first quarter of 2015, as well as in the fourth quarter of last year. On February 29, 2016, we had $15.8 million in cash, cash equivalents and bonds compared to $15,350,000 in Q4 2015 and just shy of $4 million in Q1 of 2015. Although we did increase our liquidity in Q1 compared to Q4, those were somewhat affected by working capital items such as an increase in receivables and a decrease in payables.
On a final note, let me talk about guidance for fiscal 2016. We still expect to reach sales in the range of $46 million to $49 million. As for the adjusted EBITDA, we now anticipate that it will be between $9 million and $11 million compared to the previously announced numbers of $10 million to $12 million. This is directly linked to additional activities associated with ibalizumab.
On this, let me turn the conference over back to Luc.
Okay, thank you, Philippe. Quickly in conclusion, I think that we are in a good position moving forward. We came out of the first quarter avoiding the usual downward sales trend, we increased our unit sales, written prescriptions were up, we controlled expenses, recorded a positive EBITDA, and increased our cash position. This is quite an impressive improvement over where we were just a year ago.
We also ended the quarter by adding a third territory were EGRIFTA is approved and we started the current quarter with a game-changing transaction. These are exciting times for Theratechnologies. Ever since resuming sales of EGRIFTA in the U.S., the company has been gaining momentum, and based on what has been happening in the first quarter of 2016, I can say that we are still going in the right direction. In a nutshell, I think that Theratechnologies is very, very well positioned for success.
On that note, we will now take questions from financial analysts. Thank you.
Your first question comes from the line of Doug Loe from Euro Pacific. Please go ahead.
Yes, thanks very much, and congratulations on the quarter, folks. Just a couple of things from me, Luc. You mentioned Mexico as being a growth market in 2016, as we would expect as well. Just wondering if you might be able to provide us with some additional granularity on whether or not you have a specific plan for rolling out the filings in other Latin American markets that I assume are still relevant under your partnership with Sanofi, so that’s the first thing.
Then second of all, it’s encouraging to hear that you’re starting to get some growing volumes on EGRIFTA demand in Q1. Was just wondering if based on your existing marketing efforts, historically the caps to EGRIFTA adoption have been some combination of physicians not recognizing HIV lipodystrophy as a treatable medical condition or misdiagnosing it, or the challenges with getting reimbursement from private insurers and elsewhere. So just wondering where you think you’re starting to see most of the positive traction on EGRIFTA adoption as compared to what some of the historic challenges have been to driving its adoption, including but not limited to the three things I just mentioned. I’ll leave it there, thanks.
Okay, thanks Doug. I’ll start with Mexico, and I’ll ask Lyne maybe to talk about the second question. I’ll give a little bit of color on it as well. Mexico, as I mentioned, we really need to get the reimbursement by public plans there. This is very important for the commercial success of EGRIFTA. I don’t think the contribution of Mexico for 2016 will be very significant. Of course, we anticipate to have some sales, little bit like Canada and Europe, but in those territories public plan reimbursement is very important for commercial success, so as--we’re going to work on that for Mexico in the coming months, and as we are doing now in Canada in Quebec and Ontario as well, so we are doing the same thing for Canada. So that’s my view on Mexico.
On the other territories, there is no news, as you know. There is no news for other territories in Latin America, but as I mentioned in my speech, our intent is to get other partners in other territories. We want to expand the market for EGRIFTA in other territories with some agreement like we did, for example, with EOP and BLNH.
On the sales, before I let Lyne answer on the reimbursement, physicians and so on, just highlight to you, Doug, that I think we had a pretty good quarter. Our sales in units were up by 9% compared to the usual decrease in that quarter. Our scripts, the scripts coming into our call center is up by 30%. I think it’s very good news. I think we start to see the effect of our marketing campaign, and as you have seen on Bloomberg recently, numbers are starting to go up, so everything is pointing in the right direction. In fact, that’s why we are still very, very confident on our guidance for the $46 million to $49 million in sales, and of course our EBITDA has been affected and not because of the structure of the company but because now we have a new product in the bag and we need to get the market prepared for that, because it could be approved as soon as in the first half of 2017.
So I think the planets are very well aligned for us at this point, and our investments, I think, will provide some fruit in the very near future.
On that, I will ask Lyne maybe to give you more color on the physician and reimbursements, like you asked. Lyne?
Yes. So as we continue to work very closely with the patient advocacy and key opinion leaders in the scientific community, it becomes even more evident that there is an awakening to the fact that visceral as opposed to [indiscernible] accumulation in HIV patients is an important medical condition that is now more recognized and is seen to be important to treat. So I think that’s our largest opportunity remains there, but there is a lot of validation that comes recently, and I don’t know if you connected to the science that was shared at CROI and also the recent publication of a paper from Grace McComsey that really tells the story about that existing in that patient population, why this is still happening even in the modern era of newer antiretroviral therapy, and therefore the need to treat it and the recognition that there is only one product that is FDA approved for that condition. So that is the largest opportunity that we continue to work on with both the patient advocacy and the KOL scientific community.
With our call center, I must say that we are looking at all the reimbursement issues, and this is not a major barrier although we investigate every case diligently through our dedicated personnel, but really the opportunity that we continue to work on is to elevate the importance and the recognition that excess abdominal fat exists with that population and needs to be treated, and there is one proven therapy to do so.
That’s great, thank you.
At this time, if there are any additional questions, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Neil Maruoka from Canaccord Genuity. Please go ahead.
Good morning. I think my first question has largely been answered, but really was just on the price increase that you took on EGRIFTA and what was the rationale there, and what were the reasons--why haven’t we seen any impact on patient update? You seem to show some pretty strong prescription growth, even in the face of that price increase.
My second question is on ibalizumab. Apologies - I wasn’t able to be on the call a couple weeks ago, but your Phase III is complete in Q4 and given this is an open label study and the data collection on the primary endpoint is very short, could you see top line data there over the next couple months?
Okay, first on the price increase, Neil, we increased the price by 9.7% at the beginning of the year. Maybe why you haven’t seen the full impact in the first quarter is it was not applicable to the whole quarter, so basically the price increase hit around the middle of the quarter. It was based in fact on the price increase that we have seen in the comparable products, and also on the increase of our cost of goods, which was around 8%. So based on all that, I think it was a reasonable price increase and it was in line with the rest of the industry.
On ibalizumab and the Phase III, I will ask Christian Marsolais. Maybe Christian, can you answer to that?
Yes, hi Neil. Regarding the Phase III, at the moment we’ve been informed by TaiMed that the screening of the patients will be completed to date and there are enough patients they’re screening now to recruit the minimum 30 patients requested for the completion of that trial. That will take a few weeks. After that, there is 14-day period before the patient reaches the time for the primary endpoint, and there will be also a need for quality control of the data. Following all of this work, a few weeks from now we should be able to announce some of the results for the primary endpoint.
Okay, thank you.
Okay, thank you, Neil.
Your next question comes from the line of Frederic Tremblay from National Bank. Please go ahead.
Thanks, good morning. Just wondering - you mentioned a 30% increase in scripts in your call center. Can you remind us how long this typically takes to convert to sales? Is that something that we could see the impact of that as early as Q2, or does it take longer than that?
Definitely we should see that in Q2. Usually depending on the--I would say the range is maybe between two weeks to a month and a half, let’s say a month overall to see the impact of a new script to convert into a script in the pharmacy, so this may be in Q2. Of course, out of the 30, some of them will drop, but in general it’s 30% more than what we had the previous quarter. It’s very, very good.
Okay. On the revised guidance, you mentioned that the revision is mostly or entirely related to the new product. Just wondering if you would provide some color on what the expenses actually are, like where you’re spending the money.
It’s the regular job you need to do before you launch a product, such as pricing analysis, market analysis, finding a commercial name. Ibalizumab, I think is not the name we want for a commercial product. We’ll have some MSLs, maybe one or two more MSLs in the field to prepare the market. Of course, sales reps will come later next year, but basically it’s that - it’s MSLs and some work we need to do in terms of getting the commercial product ready.
Okay, thanks for that. Are you still looking at adding more products, and if so, could you comment on the pipeline or what you’re looking at?
I think in the short term, our first priority--again, I mentioned last quarter, last week and this week as well, our first priority is to really push EGRIFTA in 2016. That’s what I like about the ibalizumab transaction, is it will keep focus our team on EGRIFTA this year. Of course, part of the team, marketing basically here in the head office will be preparing the market for ibalizumab, but our sales force will still be pushing very hard EGRIFTA. So in fact, that’s the first priority.
Second is to get ready for ibalizumab. It’s a very significant product. It could rapidly have sales in the range of EGRIFTA, so we’ll need to get prepared for that. So we have a lot on our plate as we speak, Frederic, so we’re not looking for a product in the next couple of weeks or months, but in our business we need to keep our eyes open, look at opportunities. We have a good platform, but we need to find the perfect fit. We did once. Can we do that twice in the same year? I don’t know, but we have good potential in the short term. We’ll focus on that, and if there is opportunity, definitely we’ll look at it but it’s not our number one priority at this point.
Great, thank you very much.
If there are any additional questions at this time, please press star followed by the number one on your telephone keypad.
There are no further questions at this time. I turn the call back over to Mr. Boucher.
Thank you very much. As there are no further questions at this time, we will conclude this morning’s conference call. We want to thank everyone for joining us this morning, and we wish you a very pleasant day. Thank you.
This concludes today’s conference call. You may now disconnect.
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