Theratechnologies Inc

TSX:TH

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Theratechnologies, Fourth Quarter and Full Year Fiscal 2023 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, February 21, 2024 at 8:30 a.m. Eastern Time.I will now turn the call over to Julie Schneiderman, Senior Director, Communications, and Corporate Affairs at Theratechnologies. Julie, please go ahead.

[Julie Schneiderman, executive]

Thank you, Operator, and good morning, everyone. On the call today will be Theratechnologies President and Chief Executive Officer, Mr. Paul Lévesque; and Senior Vice President and Chief Financial Officer, Mr. Philippe Dubuc.During the Q&A session, we will be joined by Dr. Christian Marsolais, Senior Vice President and Chief Medical Officer; and Mr. John Leasure, 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 sedarplus.ca and on EDGAR at sec.gov.Forward-looking statements represent Theratechnologies' expectations as of this morning, February 21, 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. The company uses this non-IFRS measure 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 follow the company on LinkedIn and X, formerly Twitter, and sign up for alerts on Theratechnologies' investor website at deratec.com.With that, I would now like to turn the conference over to our President and CEO, Paul Lévesque.

[Paul Lévesque, executive]

Thank you, Julie. Hello, everyone, and good morning. I am pleased to be reporting on Theratechnologies' financial results for the fourth quarter and full year ended November 30, 2023.What began as a challenging year for the company shifted in the second half to end 2023 on a high note with record quarterly sales, a dramatic turnaround in adjusted EBITDA, and a financing that strengthened our balance sheet with new high-quality institutional investors.Our strategy of pivoting our primary focus to commercial operations and minimizing resources for research and development activities is already paying off. We ended the year with strong fourth-quarter results and are well on our way to achieving a solid adjusted EBITDA number in 2024.Q4 2023 was the highest quarterly revenue we've ever recorded in the company's history. Third-quarter momentum in new prescription growth continued through the fourth quarter, translating into a $23.5 million in sales, ending 2023 with total annual revenue of $81.8 million.This is a significant accomplishment in light of the hurdles we faced in the first half of 2023, namely inventory drawdowns and unfavorable gross-to-net challenges. We also demonstrated strength on the bottom line in Q4 with a positive adjusted EBITDA of $5 million. This was our second consecutive quarter delivering on the strategic imperative, more than doubling adjusted EBITDA from Q3 to Q4 and ending the year with an adjusted EBITDA loss of only $2.9 million.This is a dramatic turnaround in comparison to year-end 2022 when we reported an adjusted EBITDA loss of $22 million. Based on the strength of our performance over the last 6 months, we are providing guidance today of revenues between $87 million and $90 million, with an adjusted EBITDA in the range of $13 million to $15 million for the full year 2024. By doubling down on our commercial capabilities, we are more determined than ever before to create value for our shareholders in 2024.With the year already well underway, we are seeing a solid trend on key performance metrics such as enrollments and unique patients, signaling that our objectives can be achieved and even surpassed.However, based on the buildup and subsequent drawdown of inventories in the early part of fiscal year 2023, investors should expect some variability in revenue growth reporting in 2024, especially in the first half of the year.This being said, we are confident in delivering growth over full year '24 as evidenced by today's revenue and adjusted EBITDA guidance announcement. Now that the stage is set for our growth trajectory, let's dive deeper into what's driving our topline.EGRIFTA SV continues to be the standout product in our portfolio. Over the past six and eight months, our team has demonstrated capacity to capture new patients in the ever-evolving competitive environment.In fact, our total number of unique patients hit an all-time high at the end of calendar 2023, up 13% year-over-year for the month of December. Allow me for a moment now, to remind people about the EGRIFTA SV's benefits and marketing position, given the noise about weight loss, drugs, and particularly GLP-1s, where recent clinical research has shown them to also induce muscle mass reduction.As the only medication of its kind approved in the U.S. and designed specifically for adult with HIV, EGRIFTA SV's unique mechanism of action decreases excess visual abdominal fat while actually increasing lean body mass. This is especially important people with HIV where muscle loss can be a serious issue.Furthermore, healthcare providers are increasingly recognizing that excess visceral abdominal fat is a medical condition that can lead to very serious health consequences if left untreated.We welcome this shift in understanding and diagnosis that should support patient identification and market demand for EGRIFTA SV. Before we move on, I want to address the recent update concerning our sBLA for the F8 formulation of tesamorelin and take a moment to review the facts and timelines. As you are aware, on January 22, we were notified by the FDA that they would not meet the PDUFA date.At the time, we had received very few questions and had responded swiftly to all FDA requests.On January 23, at the end of the day, we received a complete response letter. While we are disappointed by this turn of events, we are confident in the F8 formulation and plan to address the agency's comments in due course.To this end, we have been working closely with external regulatory experts to develop a comprehensive plan of action. In addition, we have requested a Type A meeting with the FDA to ensure our approach is aligned with their expectations. Let's take a closer look at the details.As previously explained in the press release, the questions outlined in the CRL are largely related to chemistry manufacturing and controls, also known as CMC. Concerning the microbiology, assays, and purities, and stability for both the drug product and the final reconstitute product. We already have most of the information on hand to address these questions, and we have started work streams related to the assay and microbiology.In addition, the FDA requested further information to address the potential impact of the new formulation on the immunogenicity risk. On this, after consultation with experts, we are preparing a risk assessment in accordance with the FDA's guidelines, and we do not believe that additional clinical studies are required.Given the progress we have made since January 23, we remain focused on resubmitting our file to the FDA and obtaining approval of the F8 formulation before the end of 2024.Our upcoming interaction with the FDA will further inform and confirm our resubmission plan and timelines for launching. In the meantime, I want to emphasize that this delay in no way impacts our successful commercialization of EGRIFTA SV, which, as I mentioned earlier, generated record sales in 2023. Let's now shift gears and look at Trogarzo.In spite of the new market entrants, Trogarzo continues to be a vital treatment for people with HIV, who have few options, and it remains a good companion to EGRIFTA SV. In order to maximize our reach and impact, we have begun to tailor promotional efforts and home in on healthcare providers who are specifically addressing multidrug resistance.We are determined to increase the value for the HIV community, while also enabling Trogarzo to be more profitable.These efforts to maximize Trogarzo's benefits and wind down our R&D efforts for the life cycle management of our products, were further complemented by a series of regulatory milestones in December, beginning with the FDA approval of the IV push loading dose of Trogarzo. This simplified method of administration takes only 90 seconds and means that new patients no longer require initiation of treatment by 30-minute infusion.Using the IV push method for both loading and maintenance doses makes Trogarzo a much more convenient option for heavily treated experienced adults and their healthcare providers.Moreover, we are awaiting the PDUFA date for the sBLA submission of an intramuscular administration of the Trogarzo maintenance dose. These line extension efforts exemplify our commitment to innovate, further improve adherence, and simplify the treatment experience for people with HIV.Now that we have completed most of the significant parts of these important projects, we have reset our cost base to better align with our overarching commitment to profitability. We are steadfast in realizing our strategic goal to reach more patients with new and improved products through organic but also inorganic opportunities.As stated previously, our U.S. commercial capabilities are prime to scale up for bolt-on accretive products and new partnerships. In this regard, we remain committed to our investors, and we'll leave no stone unturned as we look at all opportunities.Our efforts to be stringent with operating expenses, while focusing on topline growth through organic and inorganic opportunities have not gone unnoticed in the marketplace.In particular, I want to highlight our recent financing, which brought in new investors. Among them, Investissement Quebec. Investissement Quebec is a local fund that identified Theratechnologies as a company that can play a leadership role in Quebec and the broader Canadian biopharma ecosystem.IQ has chosen to invest in us because they believe in our capabilities. They came in to facilitate the growth strategy and ultimately participate in the creation of shareholder value.We welcome them to Theratechnologies, thank them for their support on the business, and look forward to their strategic contributions. In addition to revenue expansion opportunities through our current commercial business and the growth potential that exists via acquisitions and partnerships, we are encouraged by the continued interest in our oncology program.We recently announced that we have enrolled the first six patients in Part 3 of the Phase I clinical trial of our lead investigational anticancer agent, sudocetaxel zendusortide. With these milestones behind us, we're well on our way to generating new evidence for this asset in the treatment of advanced ovarian cancer. We look forward to enrolling the next six patients at a higher dose and to reporting results in 2024.With the stunning investment made by industry in antibody-drug conjugates in the past year, we remain confident that our peptide-drug conjugate platform will attract the attention of oncology players in the near future.As a reminder, we have more than 40 patients who have been dosed with sudocetaxel zendusortide, building safety, and efficacy evidence and confirming the role of the sortilin receptor.We are also encouraged by the results shared in the recent publications in Frontiers in Immunology, showing significant infiltration of tumor lymphocytes following the treatment sudocetaxel zendusortide in a cold animal model. In addition, on the preclinical front, we are advancing new peptide-drug conjugates with other potent payloads.Therefore, while sudocetaxel zendusortide has already demonstrated in human activity, one has to remember that our SORT1 technology platform provides immense possibilities to advance other PDCs.Our early data suggests that these PDCs could be used alone or in combination with targeted therapies, including checkpoint inhibitors. And finally, we believe our peptide could be conjugated with other anti-cancer treatment modalities such as radioisotopes and nanoparticles.Before concluding, let me highlight our objectives for 2024. With growth and profitability as cornerstone of our operating plan, we have set ourselves up for a promising year with four clear and focused strategic imperatives.First, we are focused on growing the topline and delivering an adjusted EBITDA in the range of $13 million to $15 million. This even considering a final $5 million investment in oncology.We will accelerate the profitability of the company by leveraging our commercial capabilities and acquiring immediately accretive products that are aligned to our expertise. Therefore, M&A activities will be a key priorities in 2024. We will seek to derive value from our investment in oncology with our Phase I clinical trial, and we'll continue to search for partners for sudocetaxel zendusortide in our entire oncology platform.And finally, we all know that the plan is only as good as the people executing on it. To that end, we will continue to enhance and engage our talented team towards a new journey focused on commercialization.With this, I'd like to turn the call over to Philippe, who will go over the period's financials and details.

[Philippe Dubuc, executive]

Thank you, Paul. Good morning, everyone. Consolidated revenue for the 3-month period ended November 30, 2023, was $23.5 million compared to $21.4 million for the same year-ago period, representing growth of 9.5% compared to the fourth period of last year.For Q4 2023, net sales of EGRIFTA SV reached $17 million compared to $14.5 million in Q4 of last year, or growth of 17.3% year-over-year. Higher net sales of EGRIFTA SV were a result of higher unit sales fueled by strong year-over-year growth in new prescriptions and a higher net selling price.Growth in sales of EGRIFTA SV for the full year is lower at 6.4%, mostly due to the inventory situation described in our second-quarter earnings call and higher rebates.Trogarzo net sales in the fourth quarter of fiscal 2023 amounted to $6.5 million compared to $7 million in the same quarter of 2022, representing a decrease of 6.7% year-over-year. The decrease was mainly due to lower unit sales in the quarter compared to last year. Sales in the fourth quarter of 2023 were also the result of higher inventory buildup in 2022, a situation which continued into Q1 of this year but has resolved itself in 2023.In Q4 2023, cost of goods decreased to $5.1 million from $5.9 million in the same quarter of fiscal 2022. The decrease in cost of goods sold was mainly due to a provision of $1.5 million taken in Q4 of 2022 related to the write-down of F8 material, which is expected to expire prior to the launch of the F8 if and when approved. This amount was offset by higher costs as a result of higher revenue.I'm happy to report again in the fourth quarter through rigorous management of spending that R&D selling and G&A expense were all lower this year when compared to the fourth quarter of 2022, helping us achieve our second straight quarter of positive adjusted EBITDA as established and as an objective early in the 2023 fiscal year.R&D expenses decreased substantially in the fourth quarter of 2023 compared to the same period last year, coming in at $5.2 million versus $9.5 million last year.It's mostly due to lower spending on our oncology program as well as lower expenses following the near completion of our life cycle management projects for EGRIFTA SV and Trogarzo. R&D expenses also include $876,000 in severance and other expenses related to the reorganization announced in July 2023 and completed in October 2023.Selling expenses decreased to $6.8 million for the fourth quarter of 2023 compared to $7.8 million for the same 3-month period last year or a decrease of $1 million. The decrease in selling expenses in the fourth quarter is mainly related to our stated goal of becoming adjusted EBITDA positive in 2023.Selling expenses should stabilize in the future as our focus on top and bottom-line growth remains our main objective, and hence, we will not be compromising on customer-facing activities.G&A expenses in the fourth quarter of 2023 amounted to $3.7 million, which includes approximately $290,000 in severance and other expenses related to reorganization as compared to $4 million in the fourth quarter of 2022 or a 7.5% decrease or 14.8%, excluding the expenses related to the reorganization. The decrease in G&A expenses is largely due to our decision to focus on our U.S. commercial operations and focus on controlling expenses.As you can see from our reduction in expenses in R&D selling and G&A in both Q3 and Q4 of 2023, we now have rightsized the organization to ensure that we are well on our way in our journey towards becoming adjusted EBITDA positive.As a result of this, we are pleased to report adjusted EBITDA in the fourth quarter of 2023 of nearly $5 million versus negative $2.4 million in the same period last year and up from $2.2 million in the third quarter of fiscal 2023.This significant improvement is due to the number of measures put in place during the year to control spending as well as lower R&D spending, reflecting the completion of many life cycle management projects. For the full year 2023, we recorded adjusted EBITDA of negative $2.9 million compared to negative $21.4 million in fiscal 2022.Net finance costs in the fourth quarter of 2023 amounted to $5.4 million and include interest of $2.4 million on the Marathon Loan Facility, costs associated with the amendment of the Loan Facility, the write-off of deferred financing costs and the change in fair value of the Marathon warrants.As Paul briefly alluded to in his remarks, we are providing guidance this morning for revenues of $87 million to $90 million for fiscal 2024 and adjusted EBITDA of $13 million to $15 million.Keep in mind that we have allocated $4.8 million of our spending for our oncology program this year, and these are included in our adjusted EBITDA guidance, pointing to the strong performance of our commercial operations.As previously mentioned, any additional spending on oncology will be carried out through partnerships. So, this program will no longer affect our adjusted EBITDA in 2025 and beyond.We ended the 2023 fiscal year on solid financial footing, thanks to the public offering and concurrent private placement completed in October 2023, with net debt of $20 million and cash bonds and money market funds at the end of the fiscal year amounted to $40.4 million, while we ended the year with $60.6 million drawn on the Marathon Facility.As described during our Q3 call, we agreed to modify certain covenants in the Credit Agreement.The main change will be that we will no longer be required to hold $30 million in cash and equivalents should the F8 formulation of EGRIFTA not be approved by the end of March 2024.The main covenants now center around liquidity and adjusted EBITDA, which are more aligned with our capacity to repay the interest and principal on the Facility. As a reminder, the amortization of the Loan Facility begins in Q3 of this year, and the loan will be repayable in 36 monthly installments beginning in August of this year.With that, Paul will be back for final comments. But first, we will now open the line to take the questions from analysts and from investors.

[Operator]

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

[Carvey Leung, analyst]

This is Carvey on for Louise. First question is on SG&A and R&D. Can you provide more color on OpEx for 2024? Second question is on business development. You spoke about acquiring new assets. Can you provide more commentary on what targets you're looking for?

[Paul Lévesque, executive]

Well, thank you for your questions. So, Philippe, I will let you answer the questions regarding the level of expenses in G&A and R&D. When it comes down to business development, we've said all along that we are looking for accretive opportunities in the space of HIV, HIV adjacent, but also small metabolic, small liver disease.This is an area where we have internal expertise obviously, with EGRIFTA, and it is a model that we believe we could put in motion based on, again, the fact that our business model at this time is very, very similar to a rare disease company, where we call on few individuals, but at the same time, have the expertise to have the surround noise with the different positions and functions that ensure reimbursement and success in the marketplace.So, Philippe, do you want to take the front part of the question?

[Philippe Dubuc, executive]

Sure. Carvey, so, the Q4 expenses for SG&A are pretty good proxies for what we'll be spending in 2024, maybe a slight increases, but nothing major.On the R&D side, however, that $5 million that we're investing in the oncology program will be done mostly in the first two quarters of the year. So, R&D should be stable in the first half, but then go down in Q3 and Q4 of this year.

[Operator]

The next question comes from Andre Uddin with Research Capital.

[Andre Uddin, analyst]

Next to see the ship starting to turn around here, were there any recent price increases for either EGRIFTA and Trogarzo?

[Paul Lévesque, executive]

Yes. Thank you, Andre, for your question and your compliments. So, John, what were the price increases we took as of January 1?

[John Leasure, executive]

We took 3.39 on Trogarzo and around 4.9 with EGRIFTA.

[Andre Uddin, analyst]

And I realize it's hard to predict, but when should we see some initial 1902 data using the new dosing protocol?

[Paul Lévesque, executive]

So, you're talking about oncology. So, Christian, now that we have dosed the first six patients. We have to wait three months to actually enroll the next cohort of six patients at slightly higher dosage. When do you expect that we're going to have some data to report?

[Christian Marsolais, executive]

Thank you, Paul, Andre. It is difficult to predict, as you know, because it depends on the results that we will see. What I can say is that we have improved our protocol, meaning that we are enrolling patients with less prior treatment. We're focusing on ovary and cancer patients and only one prior resistance to taxane. We're dosing the first dose.Now, it is weekly. It's 1.75 milligram per kilogram, which for the three doses is similar to the 200 milligram per meter square that we had in the past then, we're dosing in the range where we could see efficacy. But as to when we will have it exactly, it's difficult to say. But in three months from now, we'll be able to recruit six additional patients, as Paul mentioned, then it usually takes about four to five months before we can confirm efficacy that it should be sometime this year.

[Operator]

The next question comes from Justin Walsh with Jones Trading.

[Justin Walsh, analyst]

You mentioned new market entrants in the HIV space. I was wondering if you could comment on the overall emerging competitive landscape in HIV and how your portfolio is expected to remain competitive, especially in the context of reduced life cycle management and R&D spend.

[Paul Lévesque, executive]

Thank you, Justin. We foresee, as we said all along, Trogarzo to continue to be a meaningful product for us and for the community. It's a niche type of positioning that we have very much at the end of the line. And we know that there is a category of patients that actually do need this product and will continue to need it.But John, I think that there has been some market entrants. So, do you want to comment on those entrants in the last 18 months or so?

[John Leasure, executive]

Yes. As you know, Sunlenca has recently been launched lenacapavir, last year. We are seeing some competitive pressure from that. Trogarzo sales have been basically flat, but there's certainly a need for agents for multidrug-resistant infections. And there will always be that need. And Trogarzo is sort of the last line of defense.One thing we've done is try to improve the administration through the IV push loading dose and the IV push and now the IM submission. So, we're trying to improve simplicity for the drug and make it more accessible for patients. But overall, I think for Trogarzo we're projecting flat to moderate growth moving forward.

[Operator]

The next question comes from Bill Maughan with Canaccord Genuity.

[William Maughan, analyst]

So, my first question is, now that your adjusted EBITDA a positive, do you have a line of sight on cash flow positivity?

[Paul Lévesque, executive]

Philippe, do you want to comment on this?

[Philippe Dubuc, executive]

Yes. Well, it should be on a free cash flow basis, we're looking at probably at the end of this year being free cash flow positive. Obviously, we are seeing the top line continuing to grow in the future and the expense level has been kind of reset. So, that cash flow bottom line should be coming in in the next quarters or years.

[William Maughan, analyst]

And then my next question is on the oncology assets. So, you've mentioned partnerships and reducing spend. So, just wondering what the range of possibilities for a partnership may look like. Do you intend to fully offload all expenses? Or is there a world where you keep some amount of expense in exchange for better back-end economics?

[Philippe Dubuc, executive]

Well, I mean, in our journey towards profitability, our commitment to our investors is that, we will actually stop investing after this $5 million investment. But at such point, with TH1902, we said in the speech today that we already have 40 patients that have been dosed with this. So, we have a fair amount of human data.We've also said that the platform has a lot of potential. We are advancing two additional PDCs with other payloads or toxic payloads. So, at the end of the day, one plus the other should be attractive to a partner. And I think that the pipeline of opportunities with PDCs is quite dry at the moment. Other companies such as Novartis have already indicated that they will look for opportunities in the PDC segment.So, at one point, I think it will be what it will be with the data that we're going to have. Christian is confident that we're going to have some effective data coming out of the dosing that we're doing at the moment with the new protocol and that we will actually have better side effect profile than what we saw with the previous dosage that we had.We are in discussion with many oncology companies. Most of them do know fairly well what we do. They just want to see a more clinical data. And we're confident that by the end of the year, we could have some value creation for our shareholders. That's our goal.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Paul Lévesque for any closing remarks.

[Philippe Dubuc, executive]

So, just before we go to closing remarks, there are a few questions coming in on the webcast mostly related to partnerships for both oncology and NASH, you've addressed oncology. So maybe on the NASH, Paul.

[Paul Lévesque, executive]

We're still active on NASH, as you can imagine. But the NASH category continues to be uncertain. Magical should get their approval in the upcoming weeks. What we also know is that the GLP-1s have or could have some impact in that market that has yet to develop. So, for now, as I indicated in my speech, one thing that we know is that we can build muscle mass with our compound.Not only can we have an impact on inflammation and ultimately, fibrosis, which is what NASH is all about. But we think that if the GLP-1s in the space of weight loss/NASH have a card to play and if they need to actually complement their activities with something that can build muscle mass, well, that's what we do.So, we have conversation with some companies in that space. I do not want to be overly optimistic, but at the same time, this market is developing.As I said, weight loss and NASH can at one point, be very, very close. And who knows what that can lead to in the future. So, we're going to play this card and keep it in our sleeves until it can strike. And for now, we're still actively in conversation with companies in the space of NASH. Thanks for the question.Okay. So, thank you, everyone, for attending the call today. As discussed, we have set out an ambitious plan driven by our commercial capabilities and our renewed strategic objectives that are bound to create value for shareholders. By achieving positive adjusted EBITDA in the two consecutive quarters, the last quarters, we are demonstrating to investors that we're poised to deliver on our commitments in '24 and over the long run.Our corporate strategy and value proposition has already attracted new investors like Investissement Quebec, who have chosen to be part of our promising future. We are proud to be setting the bar high with our goals in 2024.We are guiding an adjusted EBITDA of $13 million to $15 million, even while spending $5 million in oncology. What a remarkable pivot in our corporate strategy in less than a year and a testament to Theratechnologies resolved.Thank you again for your continuing support and being part of our journey. See you soon. Have a great day.

[Operator]

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