Q4 2014 Theratechnologies Inc Earnings Call

Feb 26, 2015 AM EST
TH.TO - Theratechnologies Inc
Q4 2014 Theratechnologies Inc Earnings Call
Feb 26, 2015 / 01:30PM GMT 

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Corporate Participants
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   *  Denis Boucher
      National Public Relations - IR Representative
   *  Luc Tanguay
      Theratechnologies Inc - President, CEO

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Conference Call Participants
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   *  Andre Uddin
      Mackie Research Capital Corporation - Analyst
   *  David Martin
      Bloom Burton & Co. - Analyst
   *  Doug Loe
      Euro Pacific Canada - Analyst

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Presentation
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Operator   [1]
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 Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Theratechnologies' earnings conference call for the fourth quarter of 2014. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions). I would like to remind everyone that this conference call is being recorded today, Thursday, February 26, 2015, at 8:30 a.m. Eastern time.

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

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 Denis Boucher,  National Public Relations - IR Representative   [2]
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 Thank you and welcome. Mr. Luc Tanguay, President and Chief Executive Officer of Theratechnologies, will be the speaker on today's call. The Q&A period, open exclusively to financial analysts, will follow his 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 may 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 actual results attained 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 annual information form dated February 25, 2015 and to the risk factors sections of that same document available at www.sedar.com under Theratechnologies' public filing. Forward-looking statements represent Theratechnologies' expectations as of February 25, 2015. 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 Mr. Tanguay.

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 Luc Tanguay,  Theratechnologies Inc - President, CEO   [3]
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 Thank you Denis. Good morning, everyone, and thank you for joining us today. The 2014 fiscal year was both challenging and rewarding. On the bright side, on May 1 of last year, we retained exclusive rights to EGRIFTA in the US. This marked an important moment in the Company's history as it gives us tools to grow our business and create shareholder value.

 Unfortunately, as we were getting ready to take on full responsibility for our product, we had to face manufacturing issues which quickly depleted existing inventory and led to a complete and prolonged product shortage. This could not have happened at a worse time. Instead of assuming a transition between EMD Serono and our sales and marketing team, it meant that we had to carefully manage our liquidities and be in abeyance until product and supply resumed. To ensure that we would be in a position to supply the market, we reverted to the 1 milligram presentation, which in the past had not been subject to any commercial delays.

 We were in a position to replenish the supply change in early September, and have our first sales distribution recorded a few weeks later. All that to say that our last quarter was much different than the two previous ones with most of the sales occurring in fact only in the last two months of Q4. I'll get back to this in a moment, but let me first give you our financial results for the last fiscal year and the fourth quarter of 2014.

 Again, it's important to remember that, as of May 1, 2014, our revenues now include the full proceeds of sales of EGRIFTA to our exclusive wholesaler, and of course our expenses take into account commercial expenditure in the US.

 So consolidated revenue for the 12 months ended November 30, 2014 was CAD6.7 million compared to CAD7.6 million in 2013. For the fourth quarter, consolidated revenue were CAD2.663 million compared to CAD1.246 million for the same quarter of last year. As you can appreciate, regaining full rights to our product is starting to have an impact on our revenue.

 As for cost of sales, in the last fiscal year, they amounted to CAD2.5 million compared to CAD3.7 million in 2013. The cost of sales is made up of cost of goods sold and unallocated production costs. The cost of goods sold component in 2014 amounted to CAD991,000 compared to CAD2.262 million in the prior year, essentially due to lower volume of sales. Unallocated production costs were CAD1.464 million in 2014 compared to CAD1.449 million in the prior year. In 2014, unallocated production costs included inventory write-downs of CAD1.071 million.

 The cost of sales for Q4 2014 was CAD604,000 compared to CAD1.2 million in the comparable period of 2013. Of course, higher sales and marketing expenses are a direct correlation of assuming full responsibility for our product. Those expenses amounted to CAD6.963 million in 2014 compared to CAD252,000 in 2013. For the fourth quarter, these stood at CAD1.7 million compared to CAD60,000 for the comparable period of last year.

 Commercialization expenses in 2014 now include the amortization of the intent intangible asset value established for EGRIFTA commercialization rights, the initial organization building and marketing incentives.

 R&D expense net of tax credits were down in 2014. They amounted to CAD5.6 million compared to CAD7.4 million in 2013. R&D expenses are principally expensed for the two Phase IV clinical trials currently being conducted. For the fourth quarter of 2014, R&D expenses represented CAD1.164 million compared to CAD1.547 million in the comparable period of last year.

 In the end, we recorded a net loss of CAD10.5 million or CAD0.17 a share compared to a net loss of CAD4.1 million or CAD0.07 a share in 2013. We experienced a net loss of CAD3.6 million or CAD0.06 a share in the fourth quarter compared to a net loss of CAD2.6 million or CAD0.04 per share for the same quarter last year.

 Needless to say that without the prolonged product shortage, results would have been far different. Even in the absence of sales for almost two quarters, we were successfully minimizing our use of cash.

 We ended the fiscal year with CAD3.178 million in cash on hand. I can report that our cash position today is slightly better than what it was at the end of the fourth quarter of 2014.

 To give us more flexibility, we restructured the terms and timing of the initial $4 million payment due May 1, 2015 as part of the long-term obligation. Under the new terms, the $4 million payment will now be $4.158 million and will be paid in three unequal installments being $500,000 in May, $1.551 million in August, and $2.117 million in November 2015. This combined with resuming sales and managing expenses tightly means that we are in a position to meet our financial obligations.

 As part of our risk management plan, we have taken steps to avoid being in the same predicament we were in 2014. As such, we have started to build sufficient inventory to meet market demand. At present, we have built at least four months of inventory and our objective is to have six months worth of inventory in order to maintain commercial activities and continue to supply patients with EGRIFTA if an unexpected disruptive event occurs.

 Strategically, we also proceeded with a 30% price increase in August 2014. This decision was made to reflect actual cost of goods, post-approval commitments, development of a new 2 milligram presentation, and to bring the price closer to the products in the growth hormone category. As we anticipated, the market did not respond negatively to this.

 In mid February, we proceeded with another price increase of 9%, this time to reflect the industry annual price increase.

 This gives me the opportunity to provide you with an update on how the market is responding in the US and how we are progressing elsewhere. Of course, the US represents the single most important opportunity for us. Sales resumed a few weeks after the beginning of Q4 reaching $2.7 million with the support of only two sales representatives. With only a few days left in Q1 2015, I am confident to say that the first-quarter sales should be at least 70% higher than the previous quarter.

 As for Q2 and going forward, we now have a full contingent of 10 sales representatives in place. We obviously expect this will have an impact on future quarterly sales and we aim to sustain growth and maximize our opportunity in that territory.

 What needs to be recognized is that the US market provides a very significant leverage potential. As soon as we reach breakeven point, which we are getting close to, the sales growth will have a major impact on our profitability and our liquidities.

 In (inaudible), we are actively seeking a commercial partner to distribute EGRIFTA through name patients program in the short-term and by pursuing marketing authorization on a country by country basis in the long-term. We believe this is the best and most promising approach to gain access to the European market.

 In Canada, we are still waiting to receive a response from Health Canada regarding the commercialization of the 1 milligram vial presentation. This shouldn't take much longer as the 2 milligram is already approved and in fact we expect a decision from Health Canada in the second quarter of this year. Meanwhile, we are actively preparing everything to address the private market as soon as we receive approval.

 In Latin America, Mexico and Brazil represent the greatest opportunity, and our commercial partner is now hopeful that a decision in Mexico will be obtained around mid-2015. All this to say that we are now poised to make new inroads and reach new milestones.

 In 2015, our key objectives will be to make a commercial success of EGRIFTA in the US. We also want to launch in Canada, obtain a decision in Mexico, and find a partner in Europe to begin distribution in that territory. If we achieve all that, which is what the entire team is focused on, we should have a very rewarding year for our shareholders. We are now firing on all cylinders and results should reflect that in the coming quarters.

 So, thank you for joining us on the call today, and I will now take questions from financial analysts.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions). Andre Uddin, Mackie Research.

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 Andre Uddin,  Mackie Research Capital Corporation - Analyst   [2]
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 Good morning Luc. I just actually wanted to ask you in terms of the patient numbers right now in the US for EGRIFTA, how many patients are on the drug right now? And then also in terms of Europe, you're looking for a partner there. Are you looking to get some sort of an upfront payment there as well? If you could just discuss those two things, that would be great. Thanks.

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 Luc Tanguay,  Theratechnologies Inc - President, CEO   [3]
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 Okay. I'll start with the patient. We don't know exactly the number of patients treated today with EGRIFTA. What we know though is that we have over 800 patients that have received a prescription, and those patients in the next few weeks will be probably treated. The difference between receiving the prescription and being treated is the time it takes in our hub to prepare all the formulary and get the reimbursement from the insurance company. But we have a little bit of a heads-up knowing that we have over 800 patients in our hub at this time.

 For the second part, I don't want to comment on that. We are discussing with partners. When we will have the conclusion with one of the partners we are talking to, it will be disclosed. But what I would say, it's like, since the drug is now commercially available, we prefer to have higher, let's say higher proportion of the sale than to have upfronts and milestone. But it's not excluded, but we prefer to have a higher percentage of the topline.

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 Andre Uddin,  Mackie Research Capital Corporation - Analyst   [4]
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 Okay. That's great. Thank you.

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Operator   [5]
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 David Martin, Bloom Burton.

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 David Martin,  Bloom Burton & Co. - Analyst   [6]
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 Hi Luc. Thanks for taking the question. I was wondering. Before you got the drug back from Serono, what were sales annualizing at at that point? And what are the impediments to getting the sales back there? Has the environment changed at all? Are there any new competitors? Would you say your sales force isn't as strong as the force that Serono had out, so you may not get back there, or should it be a clear path towards getting back to that level of sales?

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 Luc Tanguay,  Theratechnologies Inc - President, CEO   [7]
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 I'll start with your last part of the question. In fact, there's not -- no difference in terms of competition. There's no other product available, and we don't see anything in the pipeline yet for that indication.

 And as far as the sales force, I think yes, maybe we have less sales reps than Serono used to have, but our sales reps are more focused. They carry just one product in their bag. They're focused in very -- in states where there's a much higher number of patients with the very focused effort we are doing. So I think we will be at least as efficient as they were.

 In terms of number of patients that renew our sales, seven we're doing. In terms of net sales, what they have reported before we adapted the product, the number was CAD32 million sales, which represents approximately, according to IMS, a peak sales of approximately 1,300 patients.

 What you have to understand here is things are much different with 1,300 patients today. At the new price ,you have to understand that our price is now 42% higher than it was with EMD Serono. So this has a major impact on our bottom line. So as soon as we reach breakeven point, which is around 650 patients, this will have a major, major impact on our bottom line.

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 David Martin,  Bloom Burton & Co. - Analyst   [8]
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 Okay. And one other question if I could. While you were out of stock, what were patients doing? Were they going to growth hormone? Were they going off of drug? And in the early experience getting the drug back on the market, has it been difficult to get them switching back, or has it been easy?

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 Luc Tanguay,  Theratechnologies Inc - President, CEO   [9]
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 Okay. To start with, we don't know. We haven't contacted any service to know what the patients were doing, but I suppose most of them were off drug at that time. If we look at the number of patients that were still on prescription before we reintroduced the drug, the response to that is very good. Having recaptured over 800 patients to our hub out of 1,000 patients that were approximately 1-- ,000 patients, sorry on drug, before the stuck out. It's quite an impressive number. So I think they were waiting for the drug, and the sales and the treatment of those patients will come because in fact it's just the timing to get reimbursed and so on, so there's a delay there, but if we look ahead, it's very promising.

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 David Martin,  Bloom Burton & Co. - Analyst   [10]
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 Okay, great. Thank you.

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 Luc Tanguay,  Theratechnologies Inc - President, CEO   [11]
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 That's tied with the results of our -- or with the patients that were on drug before. They did a pretty good job.

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 David Martin,  Bloom Burton & Co. - Analyst   [12]
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 Thank you.

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Operator   [13]
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 (Operator Instructions). Doug Loe, Euro Pacific.

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 Doug Loe,  Euro Pacific Canada - Analyst   [14]
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 Thanks very much and good morning Luc. Congratulations on the financial update here. I certainly understand that with your existing bandwidth, that you're most focused on the intermediary lipodystrophy market in the US at present. But I just -- you have abundant clinical data showing that growth hormone releasing factor analog could be effective in other endocrinology markets. I was just wondering if you had any intention or any interest from partners on perhaps looking to expand clinical activities in COPD muscle wasting or obesity or even in cognition or if the competitive landscape in those markets may have shifted in recent years to either enhance or diminish your competitive factors in that market. So, that's the first thing.

 And then second of all, apologies if you addressed this in your opening comments, but -- and if you have, we can take this off-line. But I was just wondering if you had an update on regulatory status and partner -- in Latin America and that and partnership in Europe. And I'll leave it there. Thanks.

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 Luc Tanguay,  Theratechnologies Inc - President, CEO   [15]
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 Okay. I'll start with your first question. As you can see on our corporate presentation, we have a portfolio. We have the TH elements of industry and we have two other compounds, one for cancer and the other one for acutes in injury. And you have seen in my presentation that our focus today is very clear for 2015. We really are focused and we need to do that. It's to have a real commercial success with EGRIFTA and the US. So that will make the success of Theratechnologies.

 We also want to focus -- and it will answer your second question at the same time -- to have the decision in Mexico this year, find a partner to distribute the product in their hub. So this is the focus of the Company. That being said, since we have a pipeline, we need to establish what we are going to do with that, and this is something we will look at this year, prepare a game plan for that. Will we develop it ourselves, or go with partners? That's something the board and the management here needs to look at this year. So that's what we want to do with the portfolio. But at this point, there's no activity, no research exists besides the post (inaudible) on EGRIFTA in the life of the story.

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 Doug Loe,  Euro Pacific Canada - Analyst   [16]
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 Good. That's great. Thanks a lot.

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Operator   [17]
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 There are no further questions at this time. I will now turn the call over to Mr. Boucher.

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 Denis Boucher,  National Public Relations - IR Representative   [18]
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 Thank you. If there are no further questions at this time, I would like to thank everyone for their participation on this morning's conference call. I wish everyone a very good day. Thank you.

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Operator   [19]
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 Ladies and gentlemen, this concludes today's conference call. You may now disconnect.




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