Q2 2015 Theratechnologies Inc Earnings Call

Jul 14, 2015 AM EDT
TH.TO - Theratechnologies Inc
Q2 2015 Theratechnologies Inc Earnings Call
Jul 14, 2015 / 12:30PM GMT 

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Corporate Participants
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   *  Denis Boucher
      NATIONAL Public Relations - IR
   *  Luc Tanguay
      Theratechnologies Inc. - President, CEO and Director

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Conference Call Participants
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   *  Doug Loe
      Euro Pacific Canada - Analyst
   *  Andre Uddin
      Mackie Research Capital Corporation - Analyst

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Presentation
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Operator   [1]
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 Welcome to Theratechnologies earnings conference call for the second quarter of fiscal year 2015. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, July 14, at 8:30 a.m. Eastern time, and 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   [2]
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 Thank you and welcome. Mr. Luc Tanguay, President and Chief Executive Officer of Theratechnologies, will be the speaker of today's call. A Q&A period open exclusively to financial analysts will follow this 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 results actually obtained by the Company will differ materially from those statements. As a consequence, the Company cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on them.

 Theratechnologies refers current and potential investors to the Forward-looking Information section of its press release issued this morning and to its annual information form dated February 25, 2015 and the Risk Factors section therein available at www.sedar.com under Theratechnologies' public filings.

 Forward-looking statements represent Theratechnologies' expectations as of July 14, 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 and Director   [3]
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 Okay. Thank you, Denis. Good morning, everyone, and thank you for being with us today. I must admit that I am quite excited with the results I'm about to present to you.

 As you will hear in just a moment, we have reached two historical milestones for our Company. The second quarter represents a tangible demonstration of our profound impacts our new business model is having and how quickly it makes it possible for Theratechnologies to record a positive EBITDA and a quarterly profit.

 Never before did we record a profit deriving directly from the sales of our product. When we decided to regain commercial rights to EGRIFTA more than a year ago, we set ourselves the objective of having profitable operations in the US within a year of operating in that territory. We did even better. In fact, for the second quarter, the whole Company was profitable.

 Speaking of which, let me now provide you with the detailed financial results for the second quarter. Consolidated revenue for the second quarter amounted to CAD7,280,000 compared to CAD2,393,000 for the comparable period last year and to CAD4,571,000 for the first quarter of 2015.

 As our revenue are now mostly derived from sales of EGRIFTA, you can appreciate that net sales have grown at a very interesting pace. In fact, in Q2 we had a 55% growth quarter over quarter completing the quarter with CAD7,076,000 in net sales. We also recorded an upfront payment of CAD200,000 stemming from our transaction with AOP for ARUP.

 For the three-month period ended May 31, 2015, cost of sales came to CAD918,000 or 13% of net sales. Sales and marketing expenses grew to CAD2,537,000 in the second quarter of 2015 compared to CAD2,148,000 for the same period of 2014. Higher sales and marketing spending is in direct correlation with the increased level of activities in the US and having our full salesforce for the entire quarter.

 To support sales growth in the US, it can be expected that these numbers will continue to grow slightly in the second half of this year. We planned at the beginning of the year to increase our promotional budget for Q3 and Q4 after having our full salesforce in Q2.

 I also want to remind you that sales and marketing expenses included the amortization of the intangible asset value for the commercialization rights of EGRIFTA, which was CAD468,000 in the second quarter. R&D expenses were down to CAD1,388,000 or CAD2,121,000 due to lower patient participation in the two phases of our study.

 R&D expenses should also increase slightly in the second half of our fiscal year with the addition of medical science liaison personnel also known as MSLs. Those MSLs provide medical educations to key opinion leaders and are representing Theratechnologies at healthcare conferences.

 As for general and administrative expenses for the second quarter of 2015, they were slightly lower than for the comparable period of last year, representing an amount of CAD1,013,000 instead of CAD1,370,000. Overall this is what made it possible to record a net profit of CAD818,000 or CAD0.01 for the second quarter of 2015.

 This is definitely making history for us since it's our first profitable quarter coming from our operations. In the second quarter of 2014, you will remember that we receive the tax credit refund of CAD4,110,000, which more than offset operating losses in that quarter resulting in a net profit of CAD1,007,000. Without that tax refund, Q2 2014 would have been negative.

 Not only were we profitable in the last quarter, but we also recorded a strong positive adjusted EBITDA of CAD1,885,000 compared to a negative adjusted EBITDA of CAD3,081,000. This makes us very proud of Theratechnologies. This is a major turnaround coming from a company burning over CAD10 million per year to one generating almost CAD2 million of cash flow in a single quarter only after a few months from the relaunch of our product.

 I'd like to thank the whole team at Thera for that accomplishment. Even though we paid the first installment of $500,000 to EMD Serono on May 1, we managed for three consecutive quarters to increase our liquidity. In the last quarter, liquidities amounted to CAD4,572,000 compared to CAD3,955,000 at the end of the first quarter.

 It should be noted that a significant amount of liquidities was also used for working capital purposes during Q2, which is customary during a period of rapid growth.

 As you can appreciate, results for Q2 demonstrated that we have gathered momentum in the US, and as we look ahead, these results will also eventually be supported by the introduction of EGRIFTA in new territories. We announced recently that distribution of EGRIFTA has now been initiated in Canada, and this means that we'll start recording sales in the third quarter here. While the impact will be somewhat modest on our results this year, it was an important step for us as a Canadian company.

 Moreover, the Canadian impact hedging is the one that we will be using for named patient sales program in ARUP, and as a consequence distribution in ARUP should start as expected in the second half of this year.

 As for Latin America, we announced this morning that we have just been informed that the 2 milligram presentation of EGRIFTA was approved in Mexico. So we will now proceed to obtain the regulatory approval for the 1 milligram presentation just like we did in Canada, and this process should not take more than a few months.

 Another good news was the Supreme Court favorable decision issue on April 17, which dismissed (inaudible) class actions against the Company. There is no longer any threat of litigation in that matter. As you can appreciate, while it may be summer, we are not taking any vacation from our determination to grow this Company and to keep surpassing our goals. With growing sales in the US, new territories starting to make contributions to our bottom line, I have every reason to believe that the best is yet to come for Theratechnologies.

 So I would like to 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). Doug Loe, Euro Pacific.

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 Doug Loe,  Euro Pacific Canada - Analyst   [2]
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 Yes. Thank you very much, and congratulations with your team on a strong quarter, revenue and EBITDA. So a few things for me, maybe just starting with the EGRIFTA revenue ramp, which clearly was impressive in Q2. Just want to get a sense on sort of your expectations on sort of total number of patients on drugs say over the next two or three quarters? Recall that Serono had achieved their peak numbers of patients receiving EGRIFTA in the 1300, 1350 range. Just wondered what your sense is on what proportion of that number might be achievable, say, by end of year, and what initiatives you might be undertaking in order to identify new patients on drug? Just kind of forward-looking expectations on just how prescription volumes go into ramp here based on impressive results so far, so that's the first thing.

 Second question for me was just on R&D expense, which was a bit lower than we were expecting in the quarter, and you do comment on that in your press release on lower enrollment in the diabetic retinopathy study and the 10-year cancer risk trial. That looks pretty low to us on a go forward basis as you commented, but just any quantification you can provide on how second half R&D expenses go to ramp and how patient enrollment is going to ramp there would be helpful.

 And then thirdly, you did talk about your relationship with AOP in Europe and timelines to launching under a special access program in Europe. Just wondering if you have had any discussions -- more tangible discussions with European regulators on just what initiatives you might have to undertake in order to get a more conventional EMA approval in that market and whether EMA is sort of nudging you toward doing some longer-term cardiovascular safety studies as we've sort of inferred from when you had regulatory challenges in Europe a couple of years ago.

 In summary, EGRIFTA revenue ramps at the end of the second half -- just some color there, color on R&D expense in the second half and then color on European regulatory status, and I'll leave it there. Thanks.

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 Luc Tanguay,  Theratechnologies Inc. - President, CEO and Director   [3]
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 Thank you, Doug. I'll try to remember all of your questions. First, on revenue, as you know, Doug, in the past, I never did provide guidance. In regard of future numbers, same thing. I won't start to do that now.

 What I can say, though, is that you have your own forecast for the quarter. We worked hard to beat your forecast for this quarter which we did. We are going to work hard to increase the number of patients in the next quarter.

 What I can say about the number of patients is, first, if you go on public data such as Bloomberg for example, I think you had a pretty good idea of the trend of the sales of the number of patients are growing.

 That being said, I can say that in the second quarter we had on average 240 more patients than we had in the first quarter of this year. So we had a pretty good growth there in terms of patients. We still have patients coming in, we are still growing, but you will understand that providing numbers of patients and prescription is very touchy for us.

 First, we talk about patients here, and second I don't want other companies to know exactly the internal numbers that we have. But that being said, I think it's growing definitely in the right direction, and we work definitely very hard to achieve our goals. I think we've shown up till now that we delivered every objective we had this year. And you know that we want to be at the sort of level that EMD Serono was. So where before the shortage of products last year, so we are working in that direction.

 Kind of a initiative we are going to take for that -- I mentioned in my speech that we increased a lot the number of or the amount of money we are going to put in the next quarter in promotion. That's what we planned at the beginning of the year, and we are going to implement that this quarter and next quarter. So it should, we hope, it is going to have a positive impact. And also to support the key opinion leaders and the perception of our product in the market, we have now MSLs in place at Theratechnologies since the beginning of this quarter. So this is too important an element to support the growth in sales in the next two quarters.

 For our R&D, of course, I think after being in shortage, it may be more difficult to relaunch the study. We still have patients in it. It's just that the -- we have less recruitment than what we expected. But, as I mentioned in my speech, we think that in the second half of this year R&D budget will increase. First for the fact that we are going to have more -- we hope going to have more patients in those studies, but also with the fact that we now have MSLs on board.

 As ARUP, if I remember correctly, you had a question on AOP. It is still expected to start soon distribution of our product in Europe. Now having the Canadian product available, this is the product they are going to use for that territory. So (inaudible) patients program should be initiated very soon. So we expect to have sales in Europe in the second half of this year.

 Although like Canada, it's going to be modest, but at least it's going to start. And as far as the regulatory process, we haven't concluded yet, but AOP and our team here are working on the analysis of what kind of a path we are going to take in terms of regulatory approach. We hope it is going to be a central finding again, but we are working on that, and we should conclude on this in this matter in the next couple of months.

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 Doug Loe,  Euro Pacific Canada - Analyst   [4]
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 That's great feedback. Thanks very much.

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Operator   [5]
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 Andre Uddin, Mackie Research Capital.

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 Andre Uddin,  Mackie Research Capital Corporation - Analyst   [6]
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 Good morning, Luc. Just actually I have a question in terms of your contract sales reps, right now how many are promoting EGRIFTA, and how many more reps will you be adding over the next quarter or two?

 And then also just looking at Europe, going back to Europe again, in terms of reimbursement, would you anticipate getting reimbursed within Europe? And then also lastly, how would you expect to launch EGRIFTA into Latin America?

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 Luc Tanguay,  Theratechnologies Inc. - President, CEO and Director   [7]
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 Thank you, Andre. In terms of salesforce, we have today 10 sales reps in the field as budgeted at the beginning of the year, and we have two MSLs.

 What we want to increase in the second half of this year is to have one more sales rep and one more MSL. So we will end out the year with 11 sales reps and three MSLs. We haven't decided yet what we are going to do next year. We are not already at budget timing for us, so we will decide that a little bit later this year.

 For reimbursement in Europe, when you do name patient program in Europe, this is covered by this type so far. So until we file there, the sales we are going to do through named patient program, this is covered by the state, so it is reimbursed.

 And the last question was, Latin America? When we expect to launch in Latin America? As I mentioned in my speech, we need to make the 1 milligram presentation approach so that we are going to address that in the next couple of months. Realistically I think that the sales in Mexico should start at the beginning of next year. If it's going very well maybe at the end of this year, but let's say be conservative, and I don't expect revenue from Latin America this year in my budget.

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 Andre Uddin,  Mackie Research Capital Corporation - Analyst   [8]
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 Thank you. I think that's everything. Thank you.

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 Luc Tanguay,  Theratechnologies Inc. - President, CEO and Director   [9]
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 Thank you, Andre.

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Operator   [10]
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 (Operator Instructions). There are no further questions at this time. I will now turn the call back over to Mr. Boucher.

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 Denis Boucher,  NATIONAL Public Relations - IR   [11]
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 Well, thank you very much. Since there are no further questions at this time, we will conclude this morning's analyst call. I would like to thank everyone for taking part this morning, and I wish everyone a very good day. Thank you.

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Operator   [12]
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 Ladies and gentlemen, this concludes today's conference call. You may now disconnect.




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