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Edited Transcript of TH.TO earnings conference call or presentation 4-Apr-19 12:30pm GMT

Q1 2019 Theratechnologies Inc Earnings Call

Montreal Apr 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Theratechnologies Inc earnings conference call or presentation Thursday, April 4, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christian Marsolais

Theratechnologies Inc. - Senior VP & Chief Medical Officer

* Denis Boucher

Theratechnologies Inc. - VP of Communications & Corporate Affairs

* Luc Tanguay

Theratechnologies Inc. - President, CEO & Non-Independent Director

* Philippe Dubuc

Theratechnologies Inc. - Senior VP & CFO

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Conference Call Participants

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* Brian Corey Abrahams

RBC Capital Markets, LLC, Research Division - Senior Analyst

* Dewey Steadman

Canaccord Genuity Limited, Research Division - Senior Specialty Pharma Analyst

* Douglas W. Loe

Echelon Wealth Partners Inc., Research Division - Analyst of Healthcare and Biotech

* Stephen Kwai

National Bank Financial, Inc., Research Division - Associate

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for joining by. Welcome to Theratechnologies' earnings conference call for the first quarter of 2019. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, April 4, 2019, at 8:30 a.m. Eastern time.

And I would now like to turn the conference over to Mr. Denis Boucher. Mr. Boucher, please go ahead.

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Denis Boucher, Theratechnologies Inc. - VP of Communications & Corporate Affairs [2]

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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've 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're cautioned not to place undue reliance on them. Theratechnologies refers current and potential investors to the forward-looking information section of its management's discussions 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 April 4, 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.

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Luc Tanguay, Theratechnologies Inc. - President, CEO & Non-Independent Director [3]

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Thank you, Denis. Good morning, everyone, and thank you for being with us today. Historically, our first quarter results have been relatively weaker in terms of growth. This was based on a number of external factors such as private and public insurance deductibles being reset at the beginning of the year. This being said, our first quarter sales for 2019 are almost double what they were in the same quarter last year. In total, we end up our first quarter with sales of USD 15.1 million compared to USD 8.1 million for the same quarter last year. More specifically, we sold for almost USD 9 million of EGRIFTA in Q1 2019, representing 10.5% growth from the same quarter last year.

As for Trogarzo, sales keep increasing at a strong pace, reaching USD 6.1 million in the first quarter of 2019 or 44% more than in the fourth quarter of 2018.

Those results give you a glimpse of where this company is heading. Of course, this is only one part of the story. So let's start with EGRIFTA. While some might have thought that we had seen all that we could from EGRIFTA, the recently released study results conducted by Dr. Steven Grinspoon at the Massachusetts General Hospital should convince them to think otherwise. As announced on Monday, top line results show that tesamorelin reduces liver fat by 37% compared to placebo. It was also shown that 35% of patients return to normal-level fat values compared to only 5% in the placebo group. Results also suggest that they could have potential benefits on liver fibrosis in HIV patients with NAFLD/NASH.

More than 25% of people living with HIV have NAFLD, and at the present, there are no treatments available. Of course, this begs the question as to what we will do with this new information. For one, we have decided to expand our team of medical science liaisons. From 6, we will increase it to 8, with the objective to continue education on NAFLD/NASH in HIV and to address questions from key opinion leaders on the data. While we cannot and we will not market EGRIFTA for NAFLD until obtaining a proper FDA-approved level, the roll of MSL will be pivotal in helping the medical community to fully appreciate the meaningfulness of the data.

At the same time, we will finalize the analysis of the data and precisely determine next steps. But already, a few options are being contemplated. Of course, the most obvious option for us is to work towards an amended label in the U.S, which will then include new data and significantly broaden the markets for EGRIFTA in HIV in that territory.

Another option will be to assess how we could use this data to refile in Europe, given the significance of what was announced on Monday. We will look closely at Europe, especially in the light of the facts that we are already building an infrastructure over there for Trogarzo and that there is a 10-year data protection on the first indication in that territory. In addition, we will definitely look at going outside the field of HIV. NAFLD/NASH is probably one of the most pressing concern in the U.S. -- health concern in the U.S. and in the EU. Thus far, there is little, if anything, to offer to patients faced with the condition.

In light of this positive results and potential options for us, we have taken several measures to reinforce our intellectual property position on tesamorelin or EGRIFTA. First, we have filed a pattern application covering some of the new findings emanating from Dr. Grinspoon's NAFLD/NASH study. Secondly, we have recently filed a patent application which will protect the F4 formulation as well as reinforce the patent position of the F8 formulation, which we are now actively developing. As a reminder, the F8 is already protected by a patent expiring in 2033.

These early measures are a part of our strategy to build the strongest IP position for EGRIFTA, which includes the existing formulation as well as the upcoming F4 and F8 formulations. All this come at a time when we are actively preparing for the launch of the F4 formulation. Given its added features, the F4 will help to support even more growth for EGRIFTA in 2019 and beyond.

Our goal is to launch the new F4 sometime in the fourth quarter of this year. All this to say that we are far from having seen all that EGRIFTA can deliver. A lot more is yet to come, and we will put the efforts required to make sure that we make the most of the opportunity that lies in front of us.

The same can be said for Trogarzo. After only 3 full quarters of commercialization, it has become a significant revenue generator. Several sales and marketing activities as well as other initiatives are now being implemented to support market acceptance for Trogarzo. One of them being the deployment of 3 field reimbursement specialists, whose role is to help clinics with reimbursement. Such activity should have a positive impact as reimbursement for Trogarzo is now optimal with some 87% of covered lives in the U.S. having access to Trogarzo. In Europe, our new General Manager is working actively at laying the foundation of our infrastructure. We'll soon staff key positions such as supply chain market access and medical affairs to reach the appropriate level of readiness in time for the expected decision by the European Commission around the third quarter.

The most pressing priorities at this time for the European side is to prepare for the Scientific Advisory Group meeting which will take next week. Christian Marsolais and his team have been working on their presentation, met with several key opinion leaders and patient advocates and will be ready to answer questions from the Scientific Advisory Group. While they have met a longer clock stop and that the reminder of the review will occur on the regular procedure, we still expect a recommendation from the CHMP in Q2. In fact, it's around May 29.

Of course, we will inform the market as soon as we have an update regarding the Scientific Advisory Group. Obviously, it will be impossible not to come back on the transaction we concluded just before the end of our first quarter. Both EGRIFTA and Trogarzo are the core of our immediate and midterm future, but we will be foolish not to think that -- not to think and to act on a long-term plan. As I said at the time of the Katana acquisition announcement, it will be hard to pretend that we are a well-balanced pharmaceutical company without a pipeline. Yet, we're not the type to embark in just about any transaction just to check a box. Let me remind you that just 5 years ago, our Q1 revenues were less than $1.5 million, there are now more than 10x that, and we retain a very strong cash position.

As was the case with Trogarzo and EGRIFTA transactions, we concluded a deal which makes sense and holds tremendous potential. The upfront payment of $2 million we made to conclude the acquisition of Katana, gave us access to a platform that has already shown great results in early-stage trials. Further development of the platform towards 2 potential indications in ovarian and triple-negative breast cancers will not require large-scale trial and could lead to several products for the treatment of various types of cancers.

On that note, I will now let Philippe present our result, and I will come back after a long -- for few closing remarks.

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Philippe Dubuc, Theratechnologies Inc. - Senior VP & CFO [4]

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Thank you, and good morning, everyone. As Luc just mentioned, we had a very good first quarter, with consolidated revenues of USD 15.1 million or CAD 20.1 million, this is by far our best first quarter ever. This represents growth of 86% over the same quarter last year.

What's particularly interesting to notice is that both EGRIFTA and Trogarzo are significantly contributing to our growth. EGRIFTA sales grew 10.5% to USD 9 million or CAD 11.9 million based on higher unit sales and a higher net selling price.

Trogarzo sales on their part grew 44% over Q4 of 2018 to USD 6.1 million or CAD 8.1 million, which is a reflection of everything we've put in place since launch.

Cost of sales in Q1 2019 was just over $6 million compared to $1.7 million for the same quarter last year. Our cost of sales includes the cost of goods, which increased to $4.8 million in Q1 2019 compared to a little less than $1 million for the same quarter last year. Our cost of sales no longer includes the royalty payment to EMD Serono, it does include the amortization of the asset created with the termination of the agreement with EMD Serono. The higher cost of sales figure also reflects the introduction of Trogarzo in the United States, which carries lower gross margins than EGRIFTA. This being said, we are seeing stable gross margins for each of our 2 products.

R&D expenses increased to $2.5 million in Q1 2019 compared to $1.9 million for the same quarter last year. The increase is largely due to regulatory activities in Europe, which include the inspection of the WuXi facilities in China, and which are mostly nonrecurring expenses. The FDA's decision to release Theratechnologies from the EGRIFTA post-approval commitments helped to offset the increase in R&D expenses.

For the 3-month period ended February 28, 2019, selling and market development expenses were slightly higher compared to the same quarter last year. For Q1 2019, they amounted to $5.4 million compared to $5.3 million for the same quarter last year.

General and administrative expenses amounted to $1.5 million in the first quarter of 2019 compared to $1.2 million for the same quarter last year. The increase is mainly due to the growth of our business, various business development initiatives, our preparatory work in Europe as well as the stock-based component of our director's compensation. In '18, this noncash amount was recorded in Q2 rather than in Q1.

In Q1 2019, finance costs were $1.3 million compared to $156,000 in Q1 2018. This increase is associated with the interest on the convertible notes.

For the quarter, we recorded a positive EBITDA of USD 1.5 million or CAD 2 million compared to negative EBITDA of USD 1.6 million in Q1 of 2018. This result is encouraging as Q1 is usually our weakest quarter of the year, and this year's number includes nonrecurring R&D expenses related to the European filing of Trogarzo.

In the first quarter of 2019, we recorded a net loss of USD 1.2 million or $0.02 per share compared to a net loss of USD 2.1 million or $0.03 a share for the same period last year. Operating activities generated $2.3 million of cash flow in the first quarter, with $1.1 million coming from operations and $1.2 million coming from changes in operating assets and liabilities.

While inventories had been increasing during the launch of Trogarzo, these have now stabilized to appropriate levels given our internal sales estimates for the near future.

Our financial position remains very strong, USD 54 million or CAD 71 million in cash and bonds at the end of the quarter.

On this, I will now turn to Luc for his closing remarks.

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Luc Tanguay, Theratechnologies Inc. - President, CEO & Non-Independent Director [5]

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Thank you, Philippe. In the first quarter, if the first quarter is anything -- any indication of -- 2019 will be a very good year for Theratechnologies. Without taking into account any of the recent announcements, EGRIFTA and Trogarzo represent a growing opportunity for the company. Looking back at where we were not so long ago, it is an appreciation of how much has been accomplished. Yet, much more lies ahead. Of course, it will be hard not to be excited with the study results announced earlier this week.

As I said, we need to further analyze data, but I think that we have something unique and that could propel Theratechnologies and EGRIFTA to new heights not only HIV, but potentially outside the field of HIV. We also have in Trogarzo a product that keeps generating more and more revenues in the U.S. and could relatively soon be approved in Europe. This is not to say that we will not pursue other opportunities to further strengthen our presence in the U.S. and Europe. We will keep looking for transactions that make sense and that could either grow our revenues or build a stronger product pipeline. In that sense, the acquisition of Katana represents an excellent opportunity to develop our pipeline at a reasonable cost and to build our long-term portfolio, and we look forward to sharing new data as it becomes available at scientific meetings in the near future. More than ever, we remain committed to success of Theratechnologies as we continue to implement methodically and rigorously our strategic plan.

So I want to thank you all for being on the call today, and we will now take questions from financial analysts.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Dewey Steadman from Canaccord.

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Dewey Steadman, Canaccord Genuity Limited, Research Division - Senior Specialty Pharma Analyst [2]

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I guess, I just wanted to get your thoughts on the timing for the next decisions that you need to make for EGRIFTA and NASH. Obviously, the 3 options and then you can label in the U.S. refiling in the EU and looking outside of HIV. And what factors will weigh into an investment decision behind that product?

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Luc Tanguay, Theratechnologies Inc. - President, CEO & Non-Independent Director [3]

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Yes, I'll ask Christian maybe to answer that question.

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Christian Marsolais, Theratechnologies Inc. - Senior VP & Chief Medical Officer [4]

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Yes, first I would like to maybe reiterate a bit what Luc said in terms of the quality of the result. The -- at the moment, in terms of the (inaudible) moving port, first of all, the drug is already in the market as you know. It's been on the market for a number of years, and we have a very good safety profile. You also know that about a year ago, a bit more than a year ago, the FDA stopped both of our post-approval commitment trials to address some of the safety concerns that they had at the beginning, based on the fact that the label at the moment is enough in terms of cover very well the safety profile of the drug. Then the results that we have with the 37% decrease in liver fat content is very good. And the second one that we have announced is the normalization in 35% of the patient population, considering that the average liver fat was 14% is highly significant. And also the preliminary results on fibrosis showing benefits are all very good, then for us in terms of the next step is to ensure that Dr. Grinspoon will be able to publish those results in scientific meetings and highly ranked scientific publications. And we will move with developing the different options. There are many options in terms of future clinical development plan, there would be some that would be probably the fastest to change the label in the U.S. We'll see what we can do with the results that we have obtained with the Dr. Grinspoon study, and maybe to join that study with the previous one that he obtained in patients with lipodystrophy showing similar degrees and percentages in liver fat, up to a much larger program that could potentially give us an indication for NASH, either in HIV or non-HIV. And finally, maybe taking into consideration that in Europe, the first approval will give us 10-year data protection. We will consider all options as well for Europe.

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Dewey Steadman, Canaccord Genuity Limited, Research Division - Senior Specialty Pharma Analyst [5]

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Very good. And then, I think the first I've heard about the F8 formulation. Can you talk about the advantages of that over F4? And maybe its product profile and potential timing there? And should we continue to assume a constant life cycle of management strategy for EGRIFTA that gets a shout? The contribution from that product franchise well beyond the 2023 assumption of generic [filter] in the market?

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Luc Tanguay, Theratechnologies Inc. - President, CEO & Non-Independent Director [6]

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Christian?

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Christian Marsolais, Theratechnologies Inc. - Senior VP & Chief Medical Officer [7]

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Yes, the F8, briefly. The F8, I think that you know now the way we name our different formulations, the F1 was 1 milligram per ML. The F4 is 4 milligram per ML and it's stable at room temperature. And the biggest advantage of the F8 would be that it will be a multi-dose vial, meaning that the patient can reconstitute once per week. And after that, in terms of the volume of injections, we're not totally sure about the volume because we haven't done the bioequivalent studies yet. But it will be probably similar to what we have with the F4, and all proportion kept, then it is around about 200 microliter. Meaning that for the patient it will be much simpler to use. Yes, it is exactly part of our life cycle strategy for the product. Now with the results that we have in NAFLD and the indication about the benefit on fibrosis, that formulation which is already patented could give us a further life cycle for EGRIFTA in the years to come.

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Operator [8]

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Your next question comes from the line of Brian Abrahams from RBC Capital Markets.

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Brian Corey Abrahams, RBC Capital Markets, LLC, Research Division - Senior Analyst [9]

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First question on Trogarzo. You saw a nice quarter-over-quarter uptick. I wonder if you could drill down a little bit more on the specific dynamics there in terms of how you're seeing prescription patterns evolve. What patient compliance is like? How long patients are staying on therapy? And whether there was any impact of inventory buildup or drawdown in the quarter?

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Luc Tanguay, Theratechnologies Inc. - President, CEO & Non-Independent Director [10]

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Yes. As you know, Brian, we haven't and we will not give at the moment any guidance for the sales of Trogarzo. But that being said, I have to say that sales are still continue to grow -- are still continuing to grow. In terms of compliance, retention and so on, we have to say that as of now it's above our estimate. It's going pretty well, patient on the drug, standard drug -- a lot, the percentage is very high, over 90%. So it's going pretty well on that side. So it's above expectation in that regard.

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Brian Corey Abrahams, RBC Capital Markets, LLC, Research Division - Senior Analyst [11]

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What impact might you expect the more rapid IV push to have on the market dynamics and uptake?

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Luc Tanguay, Theratechnologies Inc. - President, CEO & Non-Independent Director [12]

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Christian, you want to answer that?

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Christian Marsolais, Theratechnologies Inc. - Senior VP & Chief Medical Officer [13]

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This is a question that we have from many physicians that I think that's like if you think about the patient, the IV slow push, the patient will get in the clinic, the infusion will be done over about 30 seconds then total time in the clinic might decrease significantly to 15, 10 minutes at the most. I think that it will add to the convenience for the treatment as well as for the staff. Then we know that, that will not have any impact on the reimbursement of the action of the infusion. But for the staff, it will be much faster to do the infusion for the patient. And that should certainly help.

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Brian Corey Abrahams, RBC Capital Markets, LLC, Research Division - Senior Analyst [14]

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Great. And then just on EGRIFTA and NAFLD, could you maybe talk a little bit more about the implications of this reduction in liver fat for HIV patients? What that might mean for the long term? And what degree that we might expect some of these findings to influence the growth and adoption of the drug in the medium term? And then lastly, just on the fibrosis changes, if you could be a little bit more specific there, I'd be interested in learning whether you saw a prevention in worsening or a regression -- an actual regression in fibrosis and what kind of magnitude that looked like?

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Christian Marsolais, Theratechnologies Inc. - Senior VP & Chief Medical Officer [15]

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Yes. I think, first of all, we have a MSL team. It was known that, that study was ongoing. And over the past year, we had many questions from physicians that are very concerned about the liver of their patients to some extent. They know that NASH in HIV patients has a prevalence of about 30%. We know that the age of the HIV patient, the average is probably around 55 to 60. Then there will be significant impact of NASH in the life of the HIV patients in the future. There are no treatments. And at the moment, these results certainly gives the physician a different perspective on the drug. The result that we had in the past were significant in terms of decreasing visceral adipose tissue, but it was -- or some physicians looked more as a cosmetic condition. Now with the liver fat decrease that we have seen that will certainly change their probably view about the product and the effect of the product on the long-term safety or condition of the HIV patients. I think that's something that will be extremely important. In terms of the results for fibrosis, at the moment, it's preliminary, but it is very encouraging. As you know, the patient were probably -- patient enrolled in this study was based on the liver fat content and the biopsy on the diagnosis of NASH. Therefore, it's not the entire patient population that have NASH signs and symptoms in our population, but on the one that have the NASH symptoms, we have seen encouraging signs in terms of potential benefit for fibrosis.

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Operator [16]

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(Operator Instructions) Your next question comes from the line of Stephen Kwai from National Bank Financial.

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Stephen Kwai, National Bank Financial, Inc., Research Division - Associate [17]

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I'm actually calling in for Endri Leno and just one question from me, and I apologize if I'm asking you to be a bit repetitive. I know you touched upon it at the beginning of the call, but if you could just provide some more color on your plans for EGRIFTA and NASH going forward? Maybe if there is something that you're leaning towards?

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Luc Tanguay, Theratechnologies Inc. - President, CEO & Non-Independent Director [18]

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Okay, as I mentioned, the first thing we're doing is, we'll hire -- or we are hiring new MSLs. We're going from 6 to 8. And the MSL will be able to discuss with physicians and key opinion leaders about the benefit of EGRIFTA in that condition. So a lot of education on that side. The option that we will look at in the coming weeks and months are 3 at this point, and of course, this could change according to the more detailed data that we will have from the rest of the analysis. The first option is definitely to look at expanding the label of EGRIFTA in HIV, including the NAFLD/NASH results. The second option is to look at maybe refiling [Novak] with those new data, knowing that in Novak , we could have a 10-year data protection if we go there. And finally, definitely, with this kind of result, we cannot allow not to look at the possibility to go outside the HIV field. So we'll look also what our option in that regard, especially in the light of the development we're doing at the moment with the F8, which is protected until 2033 with the formulation patent.

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Operator [19]

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Your next question comes from the line of Doug Loe from Echelon Wealth Partners.

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Douglas W. Loe, Echelon Wealth Partners Inc., Research Division - Analyst of Healthcare and Biotech [20]

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Just had a question, was just looking a little bit more longer term. I mean, you clearly have your plate full with the ongoing Trogarzo launch and regulatory activities in Europe and potential expansion of EGRIFTA's indications in secondary metabolic markets. But a longer-term objective that you've talked about on prior calls and MD&A's was to add other niche HIV assets, ideally commercial-stage that you could infuse into your U.S. network as a way to kind of offset, or not offset, but to leverage the marketing infrastructure you already have in place there. Just wondering if that's still an area of active investigation for you to look for assets there. Are there assets that you think you could acquire in the medium term? Are you seeing any push back on valuation on other -- or on any specific HIV-associated medical markets that you think might be more attractive than others? Maybe just some commentary there would be helpful.

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Luc Tanguay, Theratechnologies Inc. - President, CEO & Non-Independent Director [21]

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Okay. Sure we -- as I mentioned in the speech, we're still active in looking at potential product or pipeline that could fit with our portfolio, meaning HIV portfolio, of course. So we're active on that side. Just remind you though that we acquire recently Katana, which does something in cancer. So now we start to have product in our portfolio for the long term. But definitely, we will stay opportunistic, if there's some good opportunity out there, we'll look at it. But as you know us, we're very prudent with this kind of mood. We want to do something that is affordable to us that we can develop ourselves, eventually market ourselves. So those opportunity are not that many, but definitely it's the part of the job of Philippe and myself to look at those opportunities.

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Douglas W. Loe, Echelon Wealth Partners Inc., Research Division - Analyst of Healthcare and Biotech [22]

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Right. Well, maybe not to push on this too much. But any already commercial-stage HIV assets would obviously be -- you'd be aware of them and they would be commercial. And so presumably, you have considered all opportunities that might be available. So are you not -- and I understand that your pipeline is quite full with other initiatives, but are you just -- are you seeing a little -- or like valuations you might be considering just kind of unattractive in comparison to your own expectations? Or for one reason or another, you're seeing other markets just unattractive in comparison to those targeted by EGRIFTA and Trogarzo? Just kind of wondering what the sort of context is for what secondary business development activities might be on going there? And then I promise to leave it there.

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Luc Tanguay, Theratechnologies Inc. - President, CEO & Non-Independent Director [23]

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No, definitely, if we have opportunities in HIV that will fit and be a good asset to add to our sales force, we'll look at it. That being said, it needs to be a real -- a really good opportunity. At the moment, our sales force needs to be really focused on Trogarzo. We have a lot of potential growth there. So sales force need to be focused on that. And of course, with the new data on EGRIFTA that could be also a very, very good opportunity. So that being said, we want the sales force to be focused on those 2 products for now. But if there's an opportunity, we'll see and evaluate it correctly. But at the moment, there's nothing, let's say, in the very short term in that regard.

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Operator [24]

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There are no further questions at this time. I turn the call back over to management for closing remarks.

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Luc Tanguay, Theratechnologies Inc. - President, CEO & Non-Independent Director [25]

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Well, thank you very much. On behalf of everyone here at Theratechnologies, I would like to thank you for being on the call today. And have a very good day. Bye, goodbye.

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Operator [26]

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