Theratechnologies Inc

TSX:TH

Earnings Call Transcript 2020-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Theratechnologies conference call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, October 15, 2020, at 8:30 a.m. Eastern Time.I would now like to turn the conference over to Denis Boucher, Vice President, Communications and Corporate Affairs. Mr. Boucher, please go ahead.

[Denis Boucher]

Thank you very much, and welcome. Mr. Paul Lévesque, President and Chief Executive Officer of Theratechnologies; and Mr. Philippe Dubuc, Senior Vice President and Chief Financial Officer, will be the speakers on today's call. A Q&A period open exclusively to financial analysts will follow their presentation.Before Paul 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 that. Theratechnologies refers current and potential investors to the Forward-Looking Information section of its Management's Discussion and Analysis issued this morning and to the Risk Factors section of its Annual Information Form dated February 24, 2020, available at www.sedar.com and on EDGAR at www.sec.gov as an exhibit to its report on Form 40-F dated February 25, 2020, under Theratechnologies' public filings.Forward-looking statements represent Theratechnologies' expectations as of October 15, 2020. 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 Paul.

[Paul Lévesque, President, CEO & Director]

Thank you, Denis. Good morning, everyone, and thank you for being with us today.The last few months have been both productive and challenging. On September 10, we announced our intention to develop tesamorelin for the treatment of NASH in the general population while including a small cohort of people living with HIV. This is a major development for Theratechnologies, which I will come back to in a moment.On the revenue side, the quarter was impacted by the COVID-19 situation, which continued to impair our ability to deploy our resources in a normal way, thus making us -- making it more difficult to bring our messages to health care providers and patients. In fact, patients are no longer going to clinics and hospitals as much as they normally used to. While many thought we were going to see relief from the COVID crisis slowly but surely as of June, remote detailing remains a norm in key states such as California, Florida and Texas.For a company like Theratechnologies, growth comes from capturing new patients, and that comes from effective interactions with our patients and physicians, which since COVID have been significantly challenged. Our capacity to be effective at interacting with physicians and patients in the remote environment needed to be addressed.Another underlying issue that we needed to address was to provide more education to physicians and patients on the medical benefits of Trogarzo and EGRIFTA. By doing so, we can also increase their presence as 2 very innovative treatments in the fight against HIV. These 2 medicines challenge the existing treatment paradigm. By building more effective educational activities, we believe we can evolve the current approaches to treating this disease.The COVID environment, coupled with the education gap we saw amongst patients and physicians, were our call for change. And this is why we had to redeploy our sales infrastructure differently to put more emphasis on medical education and effective remote interactions.Revenue for the third quarter of 2020 decreased 13% compared to the same period last year. Even though our numbers were greatly impacted by one-off items, it was clear to me that we needed to adapt immediately to our current environment. And it is now obvious that even when the pandemic is over, our way of doing business in the pharma industry will be changed forever.The same can be said about the EU. While we're now adding resources to capitalize on recent launches, we're also considering deploying the changes we made in the U.S. to increase our effectiveness there as well. On September 11, Germany became the first country in the EU where Trogarzo was commercialized, and we expect Norway to be next.As a result, I expect that the contribution of Europe to our top line will gradually grow over the coming months as Trogarzo becomes available in more countries. In addition, early access programs will continue to generate new patients in countries where such programs exist. While we're still 1.5 months away from the end of the fourth quarter, the first 6 weeks are looking good, and I think that we have an optimal structure to generate growth in a rather challenging environment.Now let's talk about our plan for developing our pipeline. On September 10, we made a hugely important announcement regarding our intention to pursue the development of tesamorelin for the treatment of NASH in the general population. We made this decision after asking ourselves if we had sufficient data to support conducting a Phase III trial in non-HIV patients, if we could be competitive in the marketplace and if we had strong enough intellectual property.To help us in reaching the right conclusion, we conveyed a group of 6 world-renowned experts in the field of NASH. These experts appreciated what they saw in our data and concluded that we had the basis to move forward with Phase III development of tesamorelin for the treatment of NASH in the general population. Once our study protocol is submitted in the fourth quarter of 2020, we should have an answer from the authorities within 30 to 60 days.At the same time, we are progressing with our oncology program. We have almost completed our preclinical work for TH1902, and we aim to file an Investigational New Drug application in the fourth quarter of 2020. Our objective remains to initiate Phase I study with our lead compound, TH1902, in early 2021. The most recent data presented in June all point towards a potential new and novel approach to treating various types of cancer through better efficacy and tolerability.So as you can see, we have a number of important catalysts coming up for both of our promising pipeline programs. While much work lies ahead of us, I feel strongly that we are building tremendous opportunities for the company going forward.On that note, I will now turn it over to Philippe to present our financial results and come back with a few closing remarks. Philippe?

[Philippe Dubuc, Senior VP & CFO]

Thank you, Paul, and good morning, everyone. Results for the third quarter of 2020 came in below our expectations. While prescription growth has clearly been impacted by the ongoing pandemic, several nonrecurring items contributed to our Q3 revenue numbers.First item is related to the final transition of EGRIFTA to EGRIFTA SV. A number of pharmacies have indicated that they would return original EGRIFTA units in exchange for EGRIFTA SV units. While we booked the returns in Q3, we will only book the corresponding revenue in Q4 since we had not shipped these replacement units at the end of Q3. This is a onetime event as there are no longer any original EGRIFTA units at the pharmacy level.Our net revenues were also affected by larger-than-anticipated rebates and charge-backs to government payers in the United States. And finally, our distributor adopted a tighter inventory management at the end of our third quarter, which resulted in lower orders in August. The situation appears to have normalized judging from the ordering since the beginning of September.Our third quarter consolidated revenues were down 12.8% compared to the same quarter last year, reaching $14 million compared to $16.1 million. EGRIFTA sales amounted to $6.9 million, representing a decrease of 25%. Based on the first 6 weeks of Q4, we are confident EGRIFTA SV sales will resume growing compared to Q4 2019.Trogarzo sales did marginally better, increasing 3.8%. In Q3 2020, sales reached $7.2 million compared to $6.9 million in Q3 2019 despite the challenges of COVID. While new prescription growth was lower than anticipated, we are encouraged by the high compliance and adherence rate of Trogarzo patients.Cost of goods sold in the third quarter of 2020 amounted to $4.6 million, down from $6.1 million for the same quarter last year. This is due in large part to lower sales of EGRIFTA and is somewhat offset by a higher proportion of Trogarzo sales, which carries a higher cost of goods.As we advance the development of tesamorelin in NASH and our SORT1+ Technology in oncology, R&D expenses are increasing. In Q3 2020, they stood at $4.3 million compared to $2.1 million for the same quarter last year. R&D expenses also include expenses related to the medical science liaison team and medical education activities in the U.S. and in Europe.Selling expenses in the third quarter were up 9%, standing at $7 million compared to $6.4 million for the same period last year. This is mainly associated to increased activities in Europe as we geared up for the launch of Trogarzo in Germany in September.General and administrative expenses grew to $2.6 million in the third quarter of 2020 compared to $1.8 million for the same quarter of last year. The increase is mainly associated with the overall business growth, increased activity in Europe, increased administrative expenses as a result of our U.S. registration and listing of our common shares on NASDAQ in October of 2019 and the transition to a new CEO.As a result of the various explanations I just provided, we recorded a negative adjusted EBITDA of $3.2 million in Q3 2020 compared to a negative adjusted EBITDA of $1.6 million last year. In Q3 2020, finance costs amounted to $831,000 compared to $1.2 million in Q3 '19. Finance costs mostly represented interest on the senior convertible notes issued in June 2018 and were offset by a foreign currency gain in Q3 2020.For the third quarter of 2020, we recorded a net loss of $6.7 million or $0.09 per share compared to a net loss of $1.6 million or $0.02 per share for the same period last year. During the quarter, we paid the second and final installment of the $7 million sales milestone owed to TaiMed. Our operations, including working capital variations, were mostly cash neutral, generating $277,000 of cash. Our financial position remains strong with close to $27 million in cash and bonds at the end of the third quarter.On this, I will now turn to Paul for his closing remarks.

[Paul Lévesque, President, CEO & Director]

Thank you, Philippe. As you just heard from Philippe, we still have a strong cash position that gives us the latitude to move forward with our plans. Our decision to go ahead with the development of tesamorelin for the treatment of NASH in the general population is a bold move, grounded in the confidence we have with tesamorelin and its probability of success, which is widely supported by our scientific advisers.Similarly to the NASH program, our oncology platform has demonstrated nothing short of spectacular results in all animal models. It appears our SORT1+ Technology concentrates cytotoxic agents into cancer cells without creating neutropenia, which is one of the main causes of cancer treatment discontinuation. This is game changing. Additionally, SORT1 receptor tend to over express themselves in hard-to-treat or advanced cancers, another key feature. Based on these key findings, we intend to file an IND for a first-in-human Phase I trial before the end of 2020. Anyone following Theratechnologies' activities over the last several months likely observed how diligent we were in preparing the ground for the next phase of development of both tesamorelin in NASH and our SORT1+ Technology.As far as our Q3 results are concerned, it is obvious that COVID-19 has had an impact. However, we acted responsibly in launching a new U.S. structure to adapt to the COVID environment. By leveraging technology and increasing our patient and physician interactions and education initiatives, we believe we can raise awareness about the medical need for our current HIV medicines. With our new U.S. sales infrastructure and the launch of Trogarzo in Germany, we are confident that we are on track for growth as of the fourth quarter of 2020 and going forward. Finally, while no one could have ever predicted the pandemic or how long it would impact us all, we believe that we have effectively navigated through the challenges of COVID, and we acted with a responsible and decisive approach that has set the stage for future growth.I want to thank you all for being on the call today. We will now take questions from analysts.

[Operator]

[Operator Instructions] Your first question comes from the line of Brian Abrahams with RBC Capital Markets.

[Leonid Timashev, Associate]

This is Leo on for Brian. I guess I'm curious if you guys have had any additional interactions with the agencies since you announced the NASH trial plan and particularly, whether you have any additional clarity on whether you need to show biopsy or histology data in NASH patients before progressing to Phase III? And I guess what -- kind of what the last steps you are in finalizing your protocol, any of the latest thoughts there, perhaps key secondary end points.

[Paul Lévesque, President, CEO & Director]

Well, thank you for the question. As you know, we basically announced that we had decided to go into the NASH general population. We have a protocol that is being developed. But as you know, there's a lot of activities in that space at this time. And while we are finalizing our protocol, we want to make sure that we don't deprive ourselves from any insights, anything that can actually make us learn what can make it different. We know we have a medicine that can prove to be effective and safe in the treatment of NASH. We absolutely want to prove that, and to prove it, we need to have the right protocol.So we're looking at finalizing our protocol by pooling from all what we can learn: companies that have failed, inputs from the agencies and any advisers that actually have got some additional insights in the last couple of months based on what has happened in the NASH space. So this is very important to us, and we just want to have the right protocol to tip it over. Christian, do you want to add anything?

[Christian Marsolais, Senior VP & Chief Medical Officer]

No. This is the feedback that we're obtaining and we're looking at, at the moment. And the protocol should be completed in the coming weeks for submission to the agencies.

[Operator]

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

[Endri Leno, Associate]

Just a couple of quick ones for me. I was wondering if you can quantify what had the most impact on sales in this quarter. I mean was it the tighter inventory, larger rebates, the new drug formulation?

[Paul Lévesque, President, CEO & Director]

Well, thank you for your question. I'll try to summarize it for you, but I'll leave it to Philippe to give you color when it comes down to the one-off items. But the COVID environment has impaired, as I said, our ability to reach out to our customers. And we found out as well that patients were not going to clinics in a normal way. So that is going to change. You may have seen any type of campaigns going from doctors themselves to say, "There's something going on now. We don't -- we're not making as many diagnoses as we used to. And as such, patients will suffer from that in the long run."So I think that slowly but surely. As of September, things are somehow resuming to a new normal, and we're getting out of that worst phase that we had in the third quarter. So the COVID environment was certainly an issue, and we acted to become more efficient in the way that we're going to be reaching out to our doctors in a remote fashion in the next couple of months. Fewer patients going to the clinic, I think that, that is going to resume. And as I said, there were a few one-off items that I will actually ask Philippe to cover.

[Philippe Dubuc, Senior VP & CFO]

Yes. And there wasn't really one item that had more impact than the other. Obviously, for both products, the inventory levels at our distributor had an impact on both products. EGRIFTA was more of a perfect storm where inventories were lowered. We had the returns of the F1 units, the charge-back. So it wasn't really one item. It was pretty much all items that impacted equally. But just the fact that we had 3 or 4 is why the results are what they are.

[Paul Lévesque, President, CEO & Director]

In other words, nothing has changed. Go ahead.

[Endri Leno, Associate]

No, I was just going to ask, so the $0.3 million write-down from the new inventory, we expect that -- I mean, that is sort of the quantum to reverse in Q4?

[Philippe Dubuc, Senior VP & CFO]

Yes. But that number will be reversed in Q4. If we had done it intra-quarter, it would have been 0. But since we did at the end of the quarter and there was an impact on Q3, the corresponding impact will be in Q4.

[Endri Leno, Associate]

Okay. Great. And the last one for me. Paul, you mentioned that Germany, I mean, it's going well initially and you're going to launch in Norway. I was wondering, I mean, if you can provide some kind of sort of broad strokes on how it is comparing the initial launch into Germany. And I know it's impacted by COVID. But I mean, excluding that, how is it developing versus your expectations, number one, and versus the U.S. launch, number two, but I mean, adjusting obviously for that COVID impact?

[Paul Lévesque, President, CEO & Director]

Well, thank you for the question again. The Trogarzo was launched in Germany mid-September. And at the time, Germany was not confined. So the symposium that we had was conducted with live doctors. So it was extremely well attended. The interest is very high. The team well understand the medicine. And as I said earlier, there's an education phase that is tremendously important for Trogarzo. Trogarzo is unique. Doctors have to understand that the viral load needs to be controlled. And Trogarzo is probably the best add-on because it has a long half-life, has long duration of action, provides good coverage for the month in combination with other medicines.So I think it will impose itself nicely. The only concern that we have at this time is the COVID environment because things are not pretty in Europe at this time. So one more reason to set up to be efficient in the remote detailing environment in a way to reach out to our customers and patients leveraging technology. And this education phase that is extremely important, we'll make sure that we learn from the U.S., and more is more when it comes down to that.

[Operator]

This concludes our question-and-answer session. I will now turn the call back over to Denis Boucher for closing remarks.

[Denis Boucher]

Well, thank you very much. As there are no additional questions at this time, we will conclude this morning's conference call. On behalf of everyone here at Theratechnologies, I would like to thank you for being on the call today, and I wish you all a very pleasant day. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.