Theratechnologies Inc

TSX:TH

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Theratechnologies Second Quarter 2024 Earnings Call. We would like to remind everyone that all figures on this call are quoted in U.S. dollars. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, Wednesday, July 10, 2024, at 8:30 a.m. Eastern Time.

I will now turn the call over to John Leasure, Global Commercial Officer at Theratechnologies. John, please go ahead.

[John Leasure, executive]

Thank you, operator, and good morning, everyone. On the call today will be Theratechnologies' President and Chief Executive Officer, Mr. Paul Levesque; and Senior Vice President and Chief Financial Officer, Mr. Philippe Dubuc. During the Q&A session, he will be joined by Dr. Christian Marsolais, Senior Vice President and Chief Medical Officer; and myself, the company's Global Commercial Officer.

Before we begin, I'd like to remind everyone that remarks today contain forward-looking statements regarding the company's current and future plans, expectations and intentions with respect to future events. Forward-looking statements are based on assumptions, and there are risks that results obtained by Theratechnologies may differ materially from those statements. As such, the company cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on them.

The company refers current and potential investors to the forward-looking information section of Theratechnologies management's discussion and analysis issued this morning and available on SEDAR at www.sedar+.ca and on EDGAR at www.sec.gov. Forward-looking statements represent Theratechnologies' expectations as of this morning, July 10, 2024.

Additionally, today, the company is using the term adjusted EBITDA, which is not a financial measure under International Financial Reporting Standards, IFRS, or U.S. Generally Accepted Accounting Principles, U.S. GAAP. Adjusted EBITDA excludes the effects of items that primarily reflect the impact of long-term investment and financing decisions rather than the results of day-to-day operations.

Theratechnologies believes that this measure can be a useful indicator of its operational performance and financial condition from one period to another. Company uses this non-IFRS measures to make financial, strategic and operating decisions. Reconciliation of adjusted EBITDA to net loss is found in our MD&A issued this morning available on SEDAR and on EDGAR at the web addresses mentioned earlier. Investors can also file the company on LinkedIn and X and sign up for alerts on Theratechnologies investor website at theratech.com.

With that, I would now like to turn the conference over to our President and CEO, Paul Levesque.

[Paul Lévesque, executive]

Thank you, John. Hello, everyone, and good morning. I'm pleased to be reporting on Theratechnologies financial results for the second quarter ended May 31, 2024. Today's call also puts us past the halfway point of what is shaping up to be a promising year. As you will hear in a moment, our second quarter was very strong. The top line has recovered, and we continue to demonstrate strength on the bottom line. In fact, for the first time in the company's recent history, we recorded a positive net income. We expect these trends to continue.

In the near 18 months, we have delivered financially on what we set out to do. Today's results marked the beginning of a new and profitable journey, sending the important message that we are on track to deliver growth and value for shareholders. This quarter, we witnessed a return to revenue growth with a reverse trend from what we saw in the first part of the year and as compared to the same period in 2023.

Moving forward and now that inventory levels have returned to normal levels, we expect sales for the second half of 2024, which is typically our stronger period to be more in line with demand. In addition to reporting $22 million in revenue, we recorded $5.5 million of adjusted EBITDA this quarter, which is a solid 25% margin. Moreover, the company has realized an impressive $12.3 million in adjusted EBITDA over the past 4 quarters. This achievement paves the way for our full-year objective. With these positive indicators in hand, I can confidently reaffirm our guidance for full-year 2024 revenues between $87 million and $90 million and an adjusted EBITDA in the range of $13 million to $15 million. Equally, this puts us in a strong position to realize new opportunities for business development that complement existing business drivers.

With that, let's now take a closer look at our engine of growth EGRIFTA SV. EGRIFTA SV remains our priority brand with performance metrics showing consistent growth. Momentum in new prescription growth continued from Q1, marking a year-to-date increase of 13% in new enrollments and 16% in unique patients compared to the same period last year. Moreover, we are tracking the number of unique prescribers, which is also steadily increasing.

As a result of the significant noise around weight loss driven by GLP-1s, our customers expect to see an increase in patients in the future with central adiposity who are seeking treatment. EGRIFTA SV is the only FDA-approved medication to treat excess abdominal fats specifically in people with HIV. We are actively leveraging these new market dynamics, so that the EGRIFTA SV will be uniquely poised to benefit patients and shareholders.

Let's turn to the F8 formulation of tesamorelin for a moment. During our last earnings call, I shared information on the Type A meeting with the FDA and some details on the important feedback we received on our filing. We are still addressing the FDA's questions, and we'll provide an update upon resubmission. The FDA has confirmed a 4-month review.

Now on to oncology and our ongoing Phase I clinical trial of sudocetaxel zendusortide, our lead investigational PDC candidate. Recently, our team presented a poster at ASCO in Chicago demonstrating signs of long-term efficacy and a manageable safety profile of sudocetaxel zendusortide in patients with solid tumors. In an updated analysis from Parts 1 and 2 of the trial, sudocetaxel zendusortide induced durable disease stabilization up to 45 weeks lasting beyond treatment completion. The results suggest a unique multimodal mechanism of action distinct from other cancer therapeutics. Additionally, investigators observed an early efficacy signal primarily in female cancers, with 7 of 16 participants or 44% achieving a clinical benefit. In March, we announced that the study's Medical Review Committee had deemed the dose level safe in the first cohort of patients in Part 3 of the trial.

I'm very pleased to confirm now that we have fully recruited for the second cohort of the study. Six patients have completed the first treatment cycle at the higher dose of 2.5 milligram per kilogram and are evaluable for safety. In parallel, we are engaging with potential partners for additional developmental steps around TH1902, and our overall SORT1+ Technology platform. To no surprise, many of our contacts are eagerly waiting results from Part 3 of the trial. There is also a keen interest in the science we have advanced with three new PDCs using the same payloads as ADC technology such as exatecan. The momentum we have generated was palpable at the recent BIO International Meeting in San Diego, where we actively engaged with a number of interested parties in addition to highlighting and pursuing products for acquisitions and commercial partnerships.

As the team continues to follow up from this key industry event and other business development activities, it is evident that our refocused commercial position has put us in a position of strength to achieve our most important objective of value creation for all shareholders.

With this, I'd like to turn the call over to Philippe who will go over the period's financials in more details. Philippe?

[Philippe Dubuc, executive]

Thank you, Paul, and good morning, everyone. As expected and as reported in April during our Q1 conference call, revenues rebounded in the second quarter, and we recorded net sales of $22 million or 25% growth versus the same quarter last year. Furthermore, I want to highlight that the efforts to reorganize the cost structure of the company are paying off with $5.5 million of adjusted EBITDA or 25% of revenues, and we recorded a net profit of about $1 million for the quarter or $0.02 per share.

I want to take this opportunity to thank everyone at Theratechnologies for their continued effort -- continued support of our efforts to become profitable, as this has been a significant turnaround in the past 18 months, which was marked by a number of challenges. For the second quarter of fiscal 2024, net sales of EGRIFTA SV reached $16.2 million compared to $10.9 million in Q2 of last year, which represents a 49% increase year-over-year. Recall that Q2 2023 sales were negatively affected by inventory drawdowns.

As mentioned previously, inventory levels have reverted to normal levels and should continue to be stable going forward. For the 6-month period ended May 31, EGRIFTA revenues have grown 9.4%, a level which is more in line with what key performance indicators such as new enrollment and total unique patients are showing.

Trogarzo net sales in the second quarter of fiscal '24 amounted to $5.8 million compared to $6.7 million for the same quarter last year, representing a decrease of 13.4% year-over-year. The decrease was mainly due to lower unit sales in the quarter as compared to last year, mostly as a result of competitive pressures in the multidrug-resistant segment of HIV treatment where Trogarzo remains an important part of the treatment arsenal, but has lost market share to new market entrants in the segment.

In the second quarter of 2024, cost of sales came in at $4.5 million, down from $4.7 million in the same quarter of fiscal 2023. EGRIFTA costs were affected by a $251,000 provision related to the production of the F8 formulation since the product is not yet approved. Excluding that provision, gross margins for EGRIFTA were 92%. Trogarzo margins were 48.5%, consistent with the terms of the time at agreement.

Again, in the second quarter of 2024, the rigorous management of spending in R&D and G&A helped us achieve a fourth straight quarter of near-flat positive adjusted EBITDA, as established as an objective early in the 2023 fiscal year. Adjusted EBITDA in the past 4 quarters was $12.3 million, which puts us in a very good position to achieve our stated guidance of $13 million to $15 million for fiscal 2024.

R&D expenses again decreased substantially in the second quarter of 2024 compared to the same period last year, mostly due to lower spending on our oncology program as well as lower expenses following the near completion of our life cycle management project for EGRIFTA SV and Trogarzo. R&D expenses came in at $4.7 million versus $10.4 million last year or a 55% decrease.

Selling expenses came in at $6.3 million for Q2 2024 compared to $6.5 million for the same 3-month period last year. Selling expenses should continue to be stable in the future as the focus on top and bottom line growth remains our top objective.

G&A expenses in the second quarter amounted to $3.1 million as compared to $3.7 million for the second quarter of 2023 or a 17% decrease. The decrease in G&A expenses is largely due to our decision to focus on our U.S. commercial operations and on controlling expenses. Again, these expenses are expected to stabilize going forward.

As you can see from our reduction of expenses in R&D and G&A in the past 4 quarters, we have now rightsized the organization to ensure that we're well on our way in our journey towards showing strong growth in adjusted EBITDA. As a result of this, we are pleased to report adjusted EBITDA for the second quarter of $5.5 million versus negative $6.1 million in the same period last year, a significant improvement of over $11 million, a combination of a strong top line as well as a realignment of spending.

Net finance costs in the second quarter amounted to $2.2 million and included interest of $2.3 million on the Marathon loan facility. As per the credit agreement, we will be starting the reimbursement of the principal in the next few weeks, and the loan will be amortized over the 36-month period beginning on August 1 of this year. We ended the second quarter on solid financial footing with cash, funds and money market funds amounting to $36 million, while we ended the quarter with $60.6 million drawn on the Marathon facility. I'm also happy to report that we recorded a net profit of close to $1 million or $0.02 per share in the second quarter of 2024.

As Paul briefly alluded to in his remarks, we are confirming our guidance this morning for revenues of $87 million to $90 million for fiscal 2024 and adjusted EBITDA of $13 million to $15 million, which includes the spending on our oncology program this year, pointing to continued strong performance of our commercial operations for the remainder of the year. As previously mentioned, any additional spending on oncology after completion of the Phase I trial will be carried out through partnerships. So this program will no longer affect our adjusted EBITDA in 2025 and beyond.

With that, we will -- Paul will be back for final comments. But first, we will open the line to take the questions from analysts, and we will also take questions from the web platform. Operator?

[Operator]

[Operator Instructions] The first question today comes from Andre Uddin with Research Capital.

[Andre Uddin, analyst]

Nice to see the company is back in [ black ] again. Just wondering, do you have a rough idea of when we should see the final data readout for 1902?

[Paul Lévesque, executive]

Thank you, Andre, for the question. Christian is next to me. Christian, I've just said that we're fully recruited that actually the 6 patients have completed the full cycle, the first cycle. When do you think we could have signals?

[Christian Marsolais, executive]

Yes, Andre, the way the protocol is built, similar as the first phase of the trial that the CT scan are done at every second cycle and usually to see -- to assess if you have a response, you need to have a confirmation. And you need to have two CT scans in a row with the confirmation that you have either stable disease or a decrease in the tumor size. Then we're talking about a follow-up -- minimum follow-up [ platforms ]. And in the fall, we should have some -- if we have some sign, we should have a read in the fall.

[Andre Uddin, analyst]

And just in terms of -- one more question. Just in terms of the F8 formulation, when do you approximately expect the FDA 4-month review to begin?

[Paul Lévesque, executive]

Christian, do you want to...

[Christian Marsolais, executive]

Yes, the -- Andre, as we had explained during the Q1, the questions for -- from the FDA are related to microbiology, immunogenicity and manufacturing. We had the Type A meeting to clarify everything to ensure that we would be able provide the appropriate data to the FDA. Then we're still working on those data, and we'll inform the market as soon as we will be able to submit the dossier.

[Operator]

The next question comes from Justin Walsh with JonesTrading.

[Justin Walsh, analyst]

Congrats on the continued strong execution. I was wondering if you could provide any updates on your efforts to find potentially accretive assets to bolster your product portfolio?

[Paul Lévesque, executive]

Thank you, Justin. As you can imagine, we're extremely active at JPMorgan at the beginning of the year. We were very active at BIO recently. We had over 45 meetings during the week, and most of them were related to finding additional companion for either the existing bag that we have in field force or creating another bag in areas where we have expertise and could actually leverage our go-to-market model. So there's lots of conversations going on with many companies that have these sort of assets that may not be a priority for them but could represent an opportunity for us.

John, do you want to add anything to what I just said?

[John Leasure, executive]

We've advanced a lot of discussions, and we have a lot of interesting assets that we're looking at. We're committed to making sure that we get the right asset for us and that we don't overpay on these things. So all I can say is there's a lot of opportunities, and we've advanced a number of these and hope to have more information shortly.

[Justin Walsh, analyst]

Great. And I was wondering if you could provide any feedback you received from the ASCO presentation. Curious about the level of potential interest as you seek partners for that asset.

[Paul Lévesque, executive]

Christian?

[Christian Marsolais, executive]

Yes, we had a very good very -- like the poster was very well attended at ASCO. And as we mentioned and the data that were presented is that we have disease stabilization in -- like clinical benefit in about 44% of the patient. And people are very curious about the reason as to why. We spoke with our main investigators, and usually, you don't see disease stabilization. If you give a cytotoxic in that patient population, very advanced patient population, a new one just a cytotoxic, usually, when you stop the treatment, you see a progression in the tumor, it starts to grow very rapidly.

In our case, we think that that could be related to the other mechanism of action that are linked to TH1902, mainly the one that is like inducing the immune cells infiltration, more or less like immunotherapy to some extent. And it was well attended and we had very good questions. It was similar also at AACR regarding the other PDCs that we have. It's raised also significant attention.

[Operator]

[Operator Instructions] The next question comes from Louise Chen with Cantor.

[Carvey Leung, analyst]

This is Carvey on for Louis from Cantor. Congrats on the progress. A couple of questions from us. First, on tesamorelin sBLA. Given the 4-month period, are you still on track to receive potential approval sometime this year?

Secondly, you spoke about advancing 3 additional PDCs. Can you talk more about on the targets? Are these all short one? Or is it some other target and also on potential indications?

[Paul Lévesque, executive]

So let me take the first question on tesamorelin [ NDA ]. Our goal is to actually get an approval before the end of current fiscal year. This is what we've said. We're working hard on addressing the questions, as Christian said. [indiscernible] the questions in 3 different areas. And we have advanced all of the areas. We'll package what we have and our intention is to file when ready and get an approval before the end of the year.

Christian, when it comes to the additional PDCs, do you want to expand on that?

[Christian Marsolais, executive]

Yes. This is a great question. And again, the -- our technology is aiming or targeting the SORT1 receptor. And even if we do different PDC with different payloads, we think that there's room for all of those PDCs. The first one was using a payload that is already used as a single agent, docetaxel, but there are many reasons as to why we wanted to test that PDC, and we saw signs of efficacy. But the other PDCs that we are using payloads that are used in the ADC technology. As like an example, the exatecan payload is not used as a single agent, but it is used in the ADC technology. And the preclinical data that we have seen so far are extremely good. We have other PDCs where it's still confidential to some extent because we're working on patent. And we also see some very good results.

The one thing that we were also able to do in terms of experiment, it's the first time now that we have significant amount of 2 PDCs enough to conduct animal data. And we did the combination of 2 PDC, TH1902 as well as the [ SN-38-1 ], that's the exatecan, but the SN-38 which is the same class of drug. And the results of the combination of those PDCs were extremely good with half of the dose we have synergistic activity. And we think that, that technology eventually could be a very good way to bring 2 very potent cytotoxic inside the cell with a relatively good safety profile.

[Paul Lévesque, executive]

So in a nutshell, the additional PDCs we have will complement what we have that is in the clinic, which is our PDC TH1902 with docetaxel. But we've received a significant inbound interest, we're conjugating also additional modalities such as radioisotopes. For now, we have not advanced that, but we will actually be very opportunistic, and we believe in the SORT1 technology. And therefore, any partner would like to actually team up to advance these sort of modalities, could actually be creating something very strong in the marketplace one day. So we are open to all kinds of partnerships, and I think that we have a platform that is very, very versatile.

[Operator]

There are no further audio questions at this time. I'd like to hand the call back over to the team.

[Philippe Dubuc, executive]

Thank you, Paul. There's a few questions on the F8 and on TH1902, which were answered.

[Paul Lévesque, executive]

Okay. Well, thank you, everyone, for attending the call today. The second quarter has well positioned us to meet 2024 annual revenues between $87 million and $90 million and an adjusted EBITDA in the range of $13 million to $15 million. As previously said, we have become net income positive for the first time in recent history, thanks to our focus and dedication towards this new profitability journey. Again, thank you immensely for your support. Enjoy the summer, and see you soon in our third quarter reporting. Have a great day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.