Theratechnologies Inc. (OTCPK:THERF) Q2 2019 Results Earnings Conference Call July 11, 2019 8:30 AM ET
Denis Boucher - Vice President, Communications and Corporate Affairs
Luc Tanguay - President and Chief Executive Officer
Philippe Dubuc - Senior Vice President and Chief Financial Officer
Christian Marsolais - Senior Vice President and Chief Medical Officer
Jovan Antunovic - Senior Vice President and Chief Commercial Officer
Conference Call Participants
Bryan Abrahams - RBC Capital Markets
André Uddin - Mackie Research Capital Corporation
Good morning, ladies and gentlemen, and thank you for standing by. Welcome to this Theratechnologies Earnings 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, July 11, 2019 at 8:30 AM Eastern Time.
I would now like to turn the conference over to Mr. Denis Boucher, Vice President, Communications and Corporate Affairs. Monsieur Boucher, please go ahead.
Thank you very much. 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 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 www.sedar.com under Theratechnologies' public filings.
Forward-looking statements represent Theratechnologies' expectations as of the 1, 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.
Thank you, Denis. Good morning, everyone, and thank you for being on the call today.
Summer is finally here, but it certainly won't be a slow season for us. We have many irons on the fire and each and every one of them represent an important piece of what we want to accomplish for this company.
May I remind you that our vision and our goal are to become a significant player in the pharmaceutical industry by making a difference in the lives of patients with special medical needs.
Of course, the cornerstone towards achieving this vision is, in the short term, to make the most of what EGRIFTA and Trogarzo have to give in terms of sales.
In Q2, our sales were up substantially compared to the same quarter last year, thanks to the increase in contribution of Trogarzo to our revenue. In fact, we have reached $15.6 million in sales in the last quarter, up from $9.6 million for the same quarter last year, representing over 60% growth.
So, I'd like to talk first about Trogarzo. Last quarter, sales of Trogarzo increased by 13.6% from the previous quarter. Things are evolving quite well for Trogarzo as net sales in June were in line with those of EGRIFTA. We are happy to have reached this milestone.
More importantly, sales of Trogarzo have kept gaining momentum recently. In fact, sales for the first five weeks of Q3 are over 20% higher than those of the first five weeks of Q2 2019.
More than ever, we are confident that peak sales of Trogarzo in the US alone could at least be five times the current sales of EGRIFTA. This has been our target from the start. And a year after lunch, it still is.
To ensure that we reach this rather ambitious objective, we're constantly implementing new initiatives. For example, we started a direct-to-consumer campaign in two key regions in the US, and that could eventually be expanded.
We have revamped our product websites and have hired key account managers in key markets. We are actively building a relationship with patient associations across the US. We will be represented at the next AIDS Walk in San Francisco and we have refined our messaging to align it to the overarching goal of bringing viral loads to undetectable levels. We believe that these initiatives, among many others, will continue to generate momentum from Trogarzo in the US.
Of course, we shall now target about Europe. As you know, we're just a few weeks away from a recommendation from the CHMP for Trogarzo. If positive, it should pave the way for an approval by the European Union.
Once approved, we'll be ready to launch within a few months in Germany, which is one of the main markets in terms of patient population, but also in terms of setting the price point for Trogarzo elsewhere in Europe.
As I said before, Europe represents a sizable market and we have been working diligently for the last few months in order to build a strong [indiscernible] supporting the best pricing possible.
Once we have launched in Germany, we'll turn our attention the other four most important markets, namely France, Italy, Spain and the UK. These markets should be coming online towards the end of 2020.
We now have the key people in place to prepare the market prior to an approval by the European Union. Our recent interaction with key opinion leaders as well as a market study we commissioned confirmed our earlier expectation that Europe will represent a market approximately half the size of the US.
I think anyone would be hard-pressed not to be excited about the future of Trogarzo. Already, it's having a profound impact on our company, but we are more than ever convinced that it will be the game changer that we thought it would be for Theratechnologies in due course based on the fact that we have made and keep making the right moves.
Of course, and like many other things in life, success comes when you remain focused on the task at hand and show patience.
Moving to EGRIFTA, we're just a few months away from the launch of EGRIFTA SV, a new and more user-friendly formulation. In fact, we expect to launch this exciting new product in the US at the end of September, giving the product features we think that it will help to give renewed interest in EGRIFTA.
As you know, when we regained commercial rights to EGRIFTA, the goal was to generate the leverage to bring Theratechnologies to the next level. This is exactly what happened, but this is far from being the end of the story.
As you know, we just announced our intention to develop a new and patented formulation of EGRIFTA for an indication in HIV patients with NASH.
Our decision became fairly obvious once data from a study conducted by Dr. Steve Grinspoon of the MGH was released. The effect of tesamorelin on liver fat and liver fibrosis is significant.
Tesamorelin reduced liver fat by 37% compared to placebo. It was also shown that 35% of the patients returned to normal liver fat value compared to only 5% in the placebo group. And both results were statistically significant.
Furthermore, only 10.5% of tesamorelin patients experienced progression of liver fibrosis compared to 37.5% in patients receiving a placebo, a result which was also statistically significant even if the number of patients was relatively limited.
This clearly shows that tesamorelin is a serious contender to become a promising option for the treatment of NASH in HIV patients.
EGRIFTA is the only product in late-stage development for the treatment of NASH in HIV patients. And in addition, we have accumulated several years of actual clinical experience with tesamorelin in close to 6,500 patients. In fact, our product was deemed to be safe enough for the FDA to lift post-approval commitments [indiscernible] when it approves EGRIFTA.
Based on our preliminary market research, we estimate that this new indication could target anywhere between 100,000 to 300,000 patients in the US only, and we also estimate that this could represent for us a market potential that could generate sales 8 to [8.5] [ph] times higher than the current indication of EGRIFTA. Further market research is ongoing, but already you can appreciate the massive potential it holds for EGRIFTA.
As for the non-HIV market, we will make a decision by year-end. The non-HIV market may seem like an obvious choice because of its size, but we must take as many factors into consideration.
Among them, we must consider the competition, the product profile, the cost of development, and reflect on the potential partnership for this particular indication. We need to answer these questions, and that's why we need a little bit more time to establish our approach in that market segment.
In HIV patients, though, the situation is quite different, given that the product is already marketed for lipodystrophy in HIV patients. It will not require such a large Phase III trial and tesamorelin is the only product in late-stage development for NASH in HIV patients.
In addition, NASH HIV could become the entry door for EGRIFTA in Europe, which could be yet another significant growth generator for Theratechnologies.
In conclusion, this is a great opportunity for Theratechnologies. The reward could be significant in the fairly short term as this is not a 10-year development program.
But to give you even more reason to be excited about Theratechnologies, let me come back on the unique oncology treatment platform.
While huge progress has been made in the treatment of various forms of cancers, a lot remains to be done in terms of efficacy and tolerability. Existing cancer treatments are notorious for their less-than-desirable side effects.
This is where our targeted oncology platform comes in. Currently, existing treatment can be compared to carpet bombing, which in the process of reaching the villain also attack the innocent.
Our technology could potentially change this by using a peptide that could ensure that cancer cells are targeted while healthy cells are left alone. In vitro and in vivo data release at ASCO demonstrated just how much potential there is in this new approach to cancer treatment.
The beauty of it all is that we use already-approved anticancer agent to attach to our peptide technology. This means that rather than developing completely new investigational agents like a gene therapy or immunotherapy, we are working on making already-effective agents even better in terms of efficacy and safety.
Our goal is to initiate the clinical trial in 2020 and complete a proof-of-concept in patients in the second half of 2021, which is just around the corner.
I believe that you can appreciate just how much and how quickly things are changing for the better at Theratechnologies and this is a sign of our focus on the task at hand and our commitment to deliver on our vision.
So, on that note, I will now let Philippe present our results and I will come back after for a few closing remarks.
Thank you, Luc. And good morning, everyone. As Luc had just mentioned, our second quarter results are again setting a new record for us. Our second quarter consolidated revenues were up 63% compared to the same quarter last year and they reached $15.6 million.
Looking at sales by product, EGRIFTA net sales were $8.6 million, basically unchanged from Q2 of last year. One of the reasons for this was a shift in patient mix towards more publicly-insured patients than in the same period last year. And as you know, we offer greater rebates for these payers. The EGRIFTA sales are expected to resume growing in the latter part of this year as we launch EGRIFTA SV which we used to refer to as the F4 formulation.
Increased compliance and adherence are expected with EGRIFTA SV due to the product's more patient-friendly attributes. Also, as EGRIFTA SV is considered a new product by public payers in the US, rebates with these groups will be reset and renegotiated before launch.
In practice, this means that our rebates offered, which in some cases reach 80%, will be reduced substantially. This is important since a growing number of EGRIFTA patients are currently eligible for rebates.
As for Trogarzo, unit sales were up 14.5% and reached $7 million in the second quarter of 2019, up 13% in dollar terms from the first quarter of 2019 and compared to $924,000 for the second quarter of last year.
Reaching this level of sales has triggered the first commercial milestone, having reached $20 million over the past four quarters. As such, we will be paying the first half of the $7 million milestone or $3.5 million in the coming days to TaiMed.
Given all the recent efforts and the activities that we're launching, we expect that sales will keep growing strongly in the future. Again, as Luc mentioned, unit sales to pharmacies for the first five weeks of Q3 show strong growth of 20% over the first five weeks of Q2 2019.
Cost of goods sold in the second quarter of 2019 amounted to $5.4 million, up from $1.6 million for the same quarter last year. This is due in large part to the introduction of Trogarzo and to overall increased sales in the US.
As for R&D expenses, they increased to $2.6 million in Q2 2019 compared to $1.9 million for the same quarter last year. The increase is largely due to regulatory and prelaunch activities in Europe, which are mostly nonrecurring, as well as our increased activity due to our acquisition of Katana Biopharma in February of this year. Again, the FDA's decision to release Theratechnologies from the EGRIFTA postapproval commitments helped to offset the increase.
Selling and market development expenses increased to $7 million compared to $6 million last year. This is a reflection of increased activities in the United States and Europe.
General and administrative expenses grew to $1.8 million in the second quarter of 2019 compared to $1.3 million for the same quarter last year. Again, the increase comes as a result of our growing presence in Europe.
We recorded a positive adjusted EBITDA of $453,000 in Q2 2019 compared to a negative adjusted EBITDA of $819,000 in Q2 of 2018. Of course, our EBITDA is being impacted by the investments being made on several fronts, including preparation work in Europe, the preparation for the launch of EGRIFTA SV and the development of the oncology platform.
In Q2 2019, finance costs came to $1.45 million compared to $283,000 in Q2 of 2018. Most of the increase is associated with the interest on the convertible notes, which were issued in June 2018.
Finance costs were somewhat offset by finance income of $292,000 due to the higher cash and cash equivalents balances for the quarter.
For the second quarter of 2019, we recorded a net loss of $3.2 million or $0.04 per share compared to a net loss of $1.9 million or $0.03 per share for the same period last year.
While our operations were largely breakeven in terms of cash use for the quarter, a combination of higher receivables and inventories, coupled with a decrease in our accounts payable, contributed to the use of $10 million in the quarter.
Higher receivables were related to higher sales, but also to the timing of orders within the quarter. Higher inventories are again related to higher sales activity, but also inventory buildup in preparation for the launch of EGRIFTA SV, while lower payables are mostly related to the timing of various payments to suppliers. We consider this level of change in working capital as being exceptional and expect more normal variations going forward.
Our financial position remains strong, with $43 million in cash and bonds at the end of the second quarter.
Before I turn it over to Luc for some closing remarks, I would like to announce that our board has formally authorized management to prepare and file an application to list our shares on NASDAQ. A listing on a US-based exchange will help us gain wider recognition, increase the liquidity of our stock, expand our shareholder base and better reflect the value of Theratechnologies. My team and I are actively working on the required documentation and we expect to file the application within the next few weeks.
Thank you, Philippe. As you can appreciate, our company keeps going in the right direction with sales moving up and several initiatives that are designed to support our growth.
The bottom line is that we have a company built on solid footing with potential to grow rapidly in the short, mid and long-term. In the short-term, Trogarzo keeps gathering momentum, while EGRIFTA should get renewed interest with the launch of EGRIFTA SV early in the fall.
Europe also holds great potential for Trogarzo. And if we receive an approval around the end of September, we should be in a position to start recording sales in Germany by the end of this year.
Over the mid and long-term, slow push version of Trogarzo, the NASH indication for EGRIFTA and our oncology platform represent huge opportunities that could bring us to the level we envision for this company.
I want to thank you all for being on the call today and we will now take questions from financial analysts.
Thank you. [Operator Instructions]. Your first question comes from the line of Bryan Abrahams from RBC Capital markets. Please go ahead.
Hi there. Thanks very much for taking my questions. On Trogarzo in Europe, I guess, first, on the regulatory side, can you talk about where you stand with respect to the registry there, your confidence you'll have sufficient sites and patient numbers and whether or not you might expect oral arguments prior to CHMP's decision?
And then, maybe on the commercial front, it sounds like there could be a potentially robust opportunity based on your latest market research. I was wondering if you could drill down on that a little bit more in terms of your expectations for – what you're learning about what the treatment dynamics could look like in Europe and maybe some similarities and differences to the US. Thanks.
Okay. So, I have a few of my colleagues in the room with me. So, Jovan for commercial and Christian for medical. So, I'll ask Christian to answer the question on the regulatory.
Yeah. Bryan, regarding the regulatory for Trogarzo in Europe, it's going very well. As for any file, we had a number of questions. Those questions were addressed. We recently also announced that we were taking a bit more time to address some of the questions and we're quite confident in our responses that we have put forward for the EMA and we're expecting responses towards the end of July on the file.
Yeah. On the commercial side, what we see is that, from the research is that actual market size is similar to the United States. We also see similarities in some of the markets. For example, Germany is structured in a similar way to the US whereby we have a mix of hospital usage as well as community usage, whereas the other markets are more hospital-based. One thing of interest is that, although we haven't launched in Europe yet, we have quite a high awareness for the drug already, and that is going to grow as we get the approval and moving to more commercial activities once we get approval.
Got it. That's really helpful. And then, I was wondering if you could maybe – shifting gears to Trogarzo's US launch and uptake, can you talk a bit about maybe the breadth of the prescribing base, how that's evolving and how the DTC campaign might potentially impact adoption patterns? Do you think the data you presented on those – on the latest five weeks and some of the uptick you're seeing there, do you think that's pull through from the DTC campaign and any other early signals you can speak of from that? Thanks.
It's very difficult to get the impact measured as quickly as that from the DTC, but we are getting quite a bit of qualitative feedback from the field about the positive impact that we're having on the – as a result of the DTC for both EGRIFTA and Trogarzo. So, we're still very early in this DTC and we will get results moving forward, but we're very optimistic that it will have an impact on our ability to accelerate Trogarzo and EGRIFTA.
Great. Thanks so much.
[Operator Instructions]. Your next question comes from the line of André Uddin from Mackie Research Capital. Please go ahead.
Good morning, everyone. Just actually wanted to ask, when do you expect to meet with the FDA to discuss your pivotal trial and also will you need to do an F8 bioequivalency trial with EGRIFTA? Thanks.
André, I will address your first question, but I need a clarification for the second one. You're asking for bioequivalence? Can you clarify that part of the question?
Just wanted to see if you actually had to do any bioequivalence studies with your F8 formulation.
Okay, okay. Maybe I'll start with the [BES] [ph], yes, we're working on this at the moment and is progressing very well. Then we will have to do a bioequivalence similar as the one that we have done for the F4. It is fairly similar in terms of volume of administration versus what we have done between the F1 and the F4. Therefore, we are quite confident that we'll be able to demonstrate bioequivalence.
For the NASH, the file is progressing extremely well. We're working with regulatory consultants, we're working with physicians with expertise in the field of NASH, and we're planning to meet with the FDA and the EMA because we'd like to have one global plan for US and for Europe towards the end of this year. But the file is moving extremely well.
Okay, all right. Thank you.
There are no further questions at this time. I turn the call back over to management for closing remarks.
Well, thank you very much. I want to thank everyone for being on the call today. There are no further questions at this time. We will conclude today's conference call. Hope you have a great day and a great summer. Thank you very much. Bye-bye.
Thank you. This concludes today's conference call. You may now disconnect.