U.S. Markets close in 2 hrs 29 mins

Edited Transcript of TH.TO earnings conference call or presentation 6-Apr-17 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Theratechnologies Inc Earnings Call

Montreal Apr 6, 2017 (Thomson StreetEvents) -- Edited Transcript of Theratechnologies Inc earnings conference call or presentation Thursday, April 6, 2017 at 12:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christian Marsolais

Theratechnologies Inc. - Chief Medical Officer and SVP

* Denis Boucher

* Luc Tanguay

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

* Lyne Fortin

Theratechnologies Inc. - Chief Commercial Officer and SVP

* Philippe Dubuc

Theratechnologies Inc. - CFO and SVP

================================================================================

Conference Call Participants

================================================================================

* Endri Leno

National Bank Financial, Inc., Research Division - Associate

* Neil Maruoka

Canaccord Genuity Limited, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Theratechnologies Earnings Conference Call for the First Quarter of 2017. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Thursday, April 6, at 8:30 a.m. Eastern time.

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

--------------------------------------------------------------------------------

Denis Boucher, [2]

--------------------------------------------------------------------------------

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 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 7, 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 may be required by securities laws, Theratechnologies does not undertake any obligation to update any forward-looking statements, 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, Theratechnologies Inc. - CEO, President and Non-Independent Director [3]

--------------------------------------------------------------------------------

Thank you, Denis. Good morning, everyone, and thank you for being with us today. We have the opportunity to discuss at length 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 our 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 the 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 U.S. 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 have in ibalizumab was again supported with new clinical trial results unveiled in mid-February at the Conference of Retroviruses and Opportunistic Infections (sic) [ 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 log from baseline, and a total of 48% of the patients had a 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 the 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 standards is underway, and the submission should be fully completed within 2 to 3 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 a physician were receptive to ibalizumab messaging and to determine the patient population for the product. Our research confirmed that physicians who treat patient 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 U.S. 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 U.S. 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 antiretrovirals currently available.

Market research is just one of the many activities we have 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 expanded team has now been hired and fully trained and, as of this week, initiated calling 94% of the 5,000 most important U.S.-based physician in the field of HIV.

The key focus in the near term for the new sales force will be EGRIFTA. Should ibalizumab be reviewed favorably 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 represent the single most important market after the U.S., and we recently initiated their 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, Theratechnologies Inc. - CFO and SVP [4]

--------------------------------------------------------------------------------

Thank you. Good morning, everyone. As Luc has 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 $8.7 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 U.S. 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 in patient assistance costs.

Theratechnologies is committed to making its products available to the 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 3x 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 revised our revenue guidance upwards on March 1. We are now forecasting EGRIFTA sales to be in the range of $44 million to $46 million in 2017. Our previous target was between $40 million to $42 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 are 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 $1.1 million in Q1 of last year.

In Q1 2017, cost of sales amounted to just over $2 million, including almost $800,000 in royalties to EMD Serono versus only $348,000 in Q1 2016 when the royalty was payable during only 2 of the 3 months of the quarter. Q1 2017 cost of sales compares to approximately $1.4 million for the same quarter of last year.

The actual cost of goods sold was slightly less than $1.1 million in Q1 2017, which represents 12% of sales, which is unchanged from last year.

Research and development expenses were up by $136,000 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 $2 million in Q1 2017 compared to slightly less than $1.9 million in Q1 of last year.

While it may seem surprising, selling and market development expenses were down compared to the same quarter last year. This is mostly a factor of exchange rate variations as most of our sales and market development expenses are in U.S. dollars. As a result, sales and market development expenses reached close to $3.8 million in Q1 2017 compared to $3.9 million in Q1 last year.

General and administrative expenses grew slightly to $1.2 million this year in comparison to $1.1 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 $1.9 million loss to reflect the higher value of the warrant liability. This is a noncash item and is strictly due to accounting rules. Therefore, finance costs amounted to $2.3 million in Q1 2017 compared to close to $700,000 in Q1 of last year.

Of course, this accounting measure also impacted our earnings. Taking this noncash item into account, we recorded a net loss of $2,243,000 or $0.03 per share in Q1 2017 compared to a net loss of $153,000 or $0.00 per share in Q1 2016.

Cash flow generated from operating activities was more than $2.5 million in Q1 2017, up from $400,000 in Q1 of last year. Operations generated close to $700,000, while changes in operating assets and liabilities generated over $1.8 million.

As a direct consequence of our public financing, which closed on December 5 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 $29.6 million in cash and equivalents compared to $11.6 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 $3 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, Theratechnologies Inc. - CEO, President and Non-Independent Director [5]

--------------------------------------------------------------------------------

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. [ On top of that ], 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 U.S., 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 innovation as it give 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 ibalizumab and more. As we have done so far with the U.S., we will approach the [ New World and ] 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 U.S. As I previously mentioned, TaiMed is completing the electronic publishing as we speak of the BLA submission, and filing with the FDA should be finalized in the next 2 to 3 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.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Neil Maruoka with Canaccord Genuity.

--------------------------------------------------------------------------------

Neil Maruoka, Canaccord Genuity Limited, Research Division - Analyst [2]

--------------------------------------------------------------------------------

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, Theratechnologies Inc. - CEO, President and Non-Independent Director [3]

--------------------------------------------------------------------------------

Okay. You have to note, Neil, that all I'm going to say is, of course, our preliminary thoughts we have. First thing we're going to do, of course, is working on the regulatory side of the filing in Europe. We are already working with the consultant 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 U.S. 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, if 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 path we hear. 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 [ top ] at the beginning for Europe is similar to the U.S. It's probably going to be a combination of 3 things. What we don't know yet is what is the proportion of each, but it's going to be a 3-way approach. The first one, of course, will be definitive for us to have a very small presence in Europe. It's farther than 1-hour flight, so we need to have maybe 1 or 2, 3 people there from Theratechnologies. So have a small team there. We like working with organization like inVentiv, so a clinical -- 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 subdistributor for that who are going 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 3 approach. But that's our initial thoughts on how we will address that market.

Is that answering your question, Neil?

--------------------------------------------------------------------------------

Neil Maruoka, Canaccord Genuity Limited, Research Division - Analyst [4]

--------------------------------------------------------------------------------

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, Theratechnologies Inc. - CEO, President and Non-Independent Director [5]

--------------------------------------------------------------------------------

Okay. For that, I'll ask Christian Marsolais, our Chief Medical Officer, to answer to that, Neil. Okay, Christian?

--------------------------------------------------------------------------------

Christian Marsolais, Theratechnologies Inc. - Chief Medical Officer and SVP [6]

--------------------------------------------------------------------------------

Neil, in terms of the -- we started to look at the numbers. In terms of the patients, the system are slightly different in Europe and in the U.S. It's more social system, more like in Canada. But in terms of the number, it's probably a bit lower, keeping all proportion together in terms of the population. But there's a significant number of MDR patients in Europe and something which will be a significant market. And in terms of the treatment, it's all very similar to what you have in the U.S.

--------------------------------------------------------------------------------

Luc Tanguay, Theratechnologies Inc. - CEO, President and Non-Independent Director [7]

--------------------------------------------------------------------------------

Just one, Neil. On the number, we've conducted some internal research to sustain what Christian is saying. Yes, the market opportunity in Europe in terms of patient is similar to the U.S., but we need to do in-depth market research function there. Okay?

--------------------------------------------------------------------------------

Neil Maruoka, Canaccord Genuity Limited, Research Division - Analyst [8]

--------------------------------------------------------------------------------

Yes, great.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from the line of Endri Leno with National Bank.

--------------------------------------------------------------------------------

Endri Leno, National Bank Financial, Inc., Research Division - Associate [10]

--------------------------------------------------------------------------------

It's -- my question, it's -- I mean, it's on ibalizumab. I was just wondering, primarily with the launch in the U.S., I mean, now that you've completed hiring the sales force, what are your next steps? And I mean -- yes, what are your thoughts? And I mean -- have you made any progress on them? And what's the next steps?

--------------------------------------------------------------------------------

Luc Tanguay, Theratechnologies Inc. - CEO, President and Non-Independent Director [11]

--------------------------------------------------------------------------------

The next step, as I said in my speech, of course, is coming from TaiMed. They will file or complete the filing because it's already started with the -- of the BLA with the FDA in the coming weeks, 2 or 3 weeks at the most. So that's the next step. 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 consultant, 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 increase our MSL team to start talking about the multidrug resistant condition. So they are not talking about ibalizumab, but they are talking about the condition, seeing who are the key opinion leaders. We're doing a lot of scientific advisory board with key opinion leaders to see what is their approach in treating those patient and so on. So there's a lot of groundwork that is being done and in order to be ready when we'll have the green light from the FDA later this fall.

--------------------------------------------------------------------------------

Lyne Fortin, Theratechnologies Inc. - Chief Commercial Officer and SVP [12]

--------------------------------------------------------------------------------

We -- if I can...

--------------------------------------------------------------------------------

Luc Tanguay, Theratechnologies Inc. - CEO, President and Non-Independent Director [13]

--------------------------------------------------------------------------------

Then Lyne will add something.

--------------------------------------------------------------------------------

Lyne Fortin, Theratechnologies Inc. - Chief Commercial Officer and SVP [14]

--------------------------------------------------------------------------------

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.

--------------------------------------------------------------------------------

Luc Tanguay, Theratechnologies Inc. - CEO, President and Non-Independent Director [15]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Endri Leno, National Bank Financial, Inc., Research Division - Associate [16]

--------------------------------------------------------------------------------

Okay. So yes, it's a bit more -- expanding on the distribution system, I mean, does it have to come from the plant 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?

--------------------------------------------------------------------------------

Christian Marsolais, Theratechnologies Inc. - Chief Medical Officer and SVP [17]

--------------------------------------------------------------------------------

If the -- I can answer the question. There's a possibility -- there's guidelines that was developed by the FDA to be able to -- its player to be able to import bulk drug in the U.S. prior to the approval. And that will be a discussion with the FDA. And the goal and what we're trying, what we're aiming at is to ensure that we have vials that we'll be ready to label as soon as we get the approval from the FDA upon the completion of the review then. And if the process is in place, then we'll be able to most likely import the drug before the PDUFA date.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

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. So we -- our goal, as we mentioned, since the beginning of the year is to launch that product in 2017, and that's what we're positioned for as we speak.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Denis Boucher, [20]

--------------------------------------------------------------------------------

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 [21]

--------------------------------------------------------------------------------

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