Theratechnologies Inc (THTX) 2011 Q3 法說會逐字稿

(Conference starts in progress) -- at any time. I would like to remind everyone that this call is being recorded today, Thursday, October 13 at 8.30 AM Eastern time. And I would now like to turn the conference over to Mr. Denis Boucher from NATIONAL Public Relations. Mr. Boucher, you may go ahead, sir.

Thank you and welcome. Speakers on today's call include Mr. John Huss, President and Chief Executive Officer, and Mr. Luc Tanguay, Senior Executive Vice President and Chief Financial Officer of Theratechnologies. Their presentations will be followed by a Q&A period, which will be opened exclusively to financial analysts.

Before we start, 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 forward future events or developments.

Several assumptions were made by Theratechnologies in preparing these forward-looking statements, and there are risks that actual results will differ materially from those contemplated by the forward-looking statements. As a result, the Company cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements.

Theratechnologies refers current and potential investors to the Risks and Uncertainties section of its annual information form dated February 22, 2011. The AIF is available at www.sedar.com and at www.sec.gov under Theratechnologies' public filings.

Forward-looking statements represent Theratechnologies' expectations as of October 13, 2011. 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. Huss.

Thank you, Denis. Good morning, everyone, and thank you for joining us today. I would provide you a brief business overview before turning the call over to Luc who will discuss our financial results. Three quarters into fiscal 2011 I'm pleased to say that we are on track to achieve all of our objectives set for this year. In terms of the commercialization of our lead product, EGRIFTA, our partner in the US, EMD Serono, continues to make good progress.

We're very pleased by EGRIFTA's reimbursement, which continues to increase. Now over 80% of the 260 million covered lives in the US have access to EGRIFTA. Based on IMS data and as demonstrated by a marked increase in royalty revenues received this quarter over last, sales of EGRIFTA in the US continue to grow nicely, generating revenues in line with our expectations.

Moving to our activities outside of the US, we have made significant progress in our regulatory affairs in the last couple of months. Our partner, Ferrer, filed in Europe in early June, and the application was accepted for review on June 27. The file continues to move along, and if approved, it will cover 30 European countries, including all EU member states.

Our other commercial partner, Sanofi, has proceeded with three regulatory filings -- one in Israel on July 5, in Argentina on August 31 and in Brazil on September 1. Also, we independently filed for regulatory approval in Canada in late June, and our files were subsequently accepted for review.

Collectively, these regulatory filings represent a potential future pool of approximately 300,000 patients for EGRIFTA. Keep in mind that our partnership structures with Ferrer and Sanofi, which was signed after EGRIFTA's FDA approval in the US, are more profitable than our US partnership with EMD Serono, which was signed before EGRIFTA was approved by the FDA. We can expect first results from these numerous regulatory filings by the second half of 2012.

While we pursue market expansion for the first indication for tesamorelin, we're also working on the development of a new indication for our lead compound. I'm pleased that we have officially launched our Phase 2 clinical program this past September, evaluating our compound for the treatment of muscle wasting and chronic obstructive pulmonary disease or COPD.

This promising new indication represents a significant potential patient base of over 3 million patients in the US and Europe alone. The objective of the study is to evaluate the effects of two doses of a new formulation of tesamorelin on lean body mass, patient functionality and quality of life. With 25 centers in the USA and Canada, we expect to enroll 200 patients with results by the end of 2012. The Phase 2 trial will cost about CAD7 million, CAD2 million in fiscal 2011 and CAD5 million in fiscal 2012.

Our goal is to derisk as much as possible the financial and scientific fronts of our clinical program. On the scientific side, we have increased the (inaudible) size to see an effect on the secondary endpoint as these will be key for the Phase 3 program.

On the financial side, we will only undertake a Phase 3 program if we see a clear effect on the secondary endpoints with the support of a codevelopment partner and once the Phase 3 program is aligned with the expectation of regulatory bodies, namely the EMA in Europe and the FDA in the US.

As you know, EMD Serono currently has an option to participate in the Phase 3 program, which we anticipate will cost approximately CAD60 million.

Turning to our research and development in the field of novel growth hormone releasing factors, we continue to make promising discoveries. We recently announced the discovery of a second generation GRF peptide with similar potency and efficacy to tesamorelin. The new peptide may be suitable for treatment of a broader range of medical conditions, namely obesity, muscle wasting, mild cognitive impairment, pre-Alzheimer's and growth hormone deficiencies. It may also be suitable for methods of administration other than injection, which is currently tesamorelin's only mode of administration.

We have filed a patent application that if granted will be valid beyond 2030, and we are also undertaking preclinical feasibility studies to explore the new GRF with new routes of administration. By mid-2012 we should be able to select the best mode of administration for our new compound.

As you can see, we have made significant progress on all fronts and continue to deliver on the business plan. I would now like to turn the call over to Luc who will discuss our financial results. Luc?

Thank you, John. Now let's have an overview of our key financial metrics for the third quarter of 2011.

Consolidated revenues for the third quarter amounted to CAD3.5 million compared to CAD1.7 million for the same period in 2010, an increase of 105%. Revenues generated from our EGRIFTA sales to EMD Serono for resale amounted to about CAD1.9 million for the quarter and total CAD5.7 million since the beginning of the year. Royalty revenue rose sharply to CAD569,000 in the third quarter compared to CAD194,000 in the second quarter. This brings total royalties received year-to-date to CAD772,000.

Note that the royalty payments were registered -- there were no royalty payments registered in the first quarter of 2011. Also, royalty for the month of July, August and September will only be reported in the fourth quarter as there is a quarterly lag in these payments.

Cost of sales of EGRIFTA for the quarter was about CAD2 million, down from about CAD2.6 million in the previous quarter. Cost of sales are expected to continue to decrease as old inventory is depleted, which is expected in 2012, and also once the costs associated with validating additional suppliers are behind us. We're in the process of validating additional suppliers to ensure product supply at all times.

R&D expenses net of tax credits totaled CAD2.9 million for the quarter, slightly lower than the previous quarter. Note that these expenses includes costs related to the launch of our Phase 2 clinical trial evaluating tesamorelin in muscle wasting associated with COPD.

General and administrative expenses amounted to CAD2.1 million this quarter compared to CAD2.3 million for the same period in 2010. So we recorded a net loss of CAD4.2 million this quarter or CAD0.07 per-share. Net loss this quarter decreased by 30% compared to the first and second quarter of 2011.

Finally, at quarter end liquidities, which include cash and bonds, tax credit and grants receivable amounted to over CAD40 million while investing approximately CAD7 million in networking capital in the last nine months.

In a nutshell, all our key financial metrics are tracking well. Revenues continue to increase as do royalties, cost of goods are decreasing, our other expenses are stable, and we have cash on hand. Overall, we are in a very solid financial position to continue to carry out the objectives of our current business plan.

I will now turn the call back over to John for closing remarks.

Thanks, Luc. So, in closing, I would just like to say that I am proud of our progress to date as we continue to make good progress and good on our commitments and objectives for 2011. Our fundamentals are strong, and we're confident that over time markets will recognize the true value of our Company, which is currently not reflected in our opinion in our stock price. We've been this in the last month, meeting with and presenting to our current and future retail and institutional shareholder base here in Canada and in the US. We have participated in many healthcare conferences and are proactively telling our story, and my agenda is packed over the next 18 months with speaking engagements.

We have accomplished a lot today, and there's a lot more to come. I'm even more confident today than I was when I first joined the Company that we have a very bright future ahead of us. We have a commercialized product in the US generating revenues, strong partners in all major markets, an ongoing Phase 2 trial with a promising indication, a new GRF analog that we hope to develop with a more patient-friendly mode of administration in a wider range of indications, and sufficient cash to execute on our business plan.

With that, I would like to take this opportunity to thank our team here at Thera that has been working diligently to achieve our collective goals. Of course, I wish to thank our shareholders for their continued support, and last but not least, I would like to thank you all for joining our call today.

And with that, I will now pass it over to the operator, and we'll take questions from financial analysts.

(Operator Instructions). Pooya Hemami, Desjardins Capital Markets.

Thank you for taking my questions. I would like to know, first of all, if there is any update to your guidance for 2011 EGRIFTA sales by Serono and also for the number of patients to be on the drug by year-end 2011?

Yes, I will take that one, Pooya. Good morning.

So, as I mentioned, these sales are tracking well, and they are in line with our expectations. So, at this point, we see no reason to change the guidance we made in July.

In terms of scripts, at the end of September, we had 2250 new scripts. So if you just take the average of the past two months, which was over 70, but if we take 70 scripts over the next seven weeks to year-end, we will be above 3000. So we still think we will be ending somewhere between 3000 and 4000; more realistically between 3000 and 3500 new scripts, which will help us deliver the numbers we mentioned and give us a good base going into 2012.

Okay. Perfect. Thank you. And also, can you just -- I might have missed this, in terms of validating additional suppliers for EGRIFTA, do you have any timeline as to when you expect that to be completed?

We are currently working on a contract. We should be finished within the next couple of months.

(inaudible)

Yes and then we need to validate our suppliers. So once we have signed everything, then we need to validate the suppliers, and that is going to take another 24 months to validate. And then we will have a second supply up and running by 2013.

So by beginning 2013 or end 2013.

No, end of 2013.

Okay. Another question, just if I can ask this last one, your cash burn was around CAD9 million or so for the quarter. Do you have any expectation as to when you think you will be cash flow positive? Because at this rate you would be out of cash in four quarters. So do you have any expectation on that?

I think you have to look at the use of cash. We used CAD9 million in terms of cash. But, as you see in debt, you have an increase in working capital, which at some point should stabilize. So the net use of cash for operation, if you will, is much around CAD5 million for the quarter and around CAD18 million for the nine months. So we are in line with the CAD25 million guidance that we gave at the beginning of the year, and we are not providing any guidance for next year for now. We will at the end of the year. Okay?

All right. Thank you.

[Adam Butts], RBC Capital Markets.

Thanks for taking my question and a nice uptick in royalties, John and Luc. I guess my first question is a clarification question. In terms of the guidance that was given in the past about EGRIFTA user sales, I just want to clarify that is IMS sales, right? That is not gross net adjusted?

No, actually what we're talking about is gross sales. For us obviously for the royalties we're perceiving, the only two valid numbers we look at are gross sales we receive from EMD Serono and then from which we derive net sales, which are the basis for the royalty payments. So the gains we talk about are gross sales.

Okay, okay. So the net sales number would be lower than that. Sure. In terms of if I have to look at the royalty number reported, I could kind of back calculate the number of patients that would have been on drug in Q2. Can you give any more clarity on patients that are on drug? What is the best metric to look at right now?

At this point, we have data on patients that comes from the access program, but this is private information from EMD Serono which we can't share with you. So, yes, I mean the point we're addressing is that you are going to start seeing a discrepancy between the new patient, the drug and the number of new scripts.

So for now, the only numbers we will be disclosing today and in the future are related to scripts. So unfortunately I cannot give you any clues right now on how to derive the number of patients from the number of new scripts. But, in the future, the only numbers we will be using are new and total scripts.

Okay. But you have access to that data, and you will get to see it yourself, even if you cannot disclose it?

Yes, that's correct.

And I guess the final question is on the COPD program. Have you disclosed the doses that are being used, or have you said that the doses that are being tested are higher than the doses that were used in the prior-year COPD?

So we have two doses, and we're using the new formulations. So the low dose will be equivalent to the 2 milligram we have on the market currently with the 2 milliliter solution, and the high dose will be a bit less than twice that.

(multiple speakers) The rest are areas that we haven't seen any issues in terms of (inaudible) and side effects. So we're confident today that, by increasing the dose, we are not going to have any safety issue and the hypothesis is we want to see if there's a correlation between increased dose and increase in lean body mass. And if that is true, if there is a correlation between improved functionality and increase in lean body mass. So that is what we're seeking to find out in the Phase 2. After the Phase 2, we will choose the best dosage to move forward with the Phase 3 program.

And I believe you will let us know when the enrollment in the Phase 2 program is completed?

Yes, probably once we -- recruitment is finished, so we will post that. We'll inform you. (multiple speakers) We're expecting it to take about six months to enroll, and the last patient will be treated for six months.

Thanks. I'll get back in queue for now.

Okay. Thank you.

(Operator Instructions). Neil Maruoka, Canaccord Genuity.

Good morning and thanks for taking the question. Q2 the sale of goods revenue may been a bit higher due to inventory build and pipeline fill, and so we see a small decline into Q3. Can you give an idea of the absolute EGRIFTA product sales growth from Q2 to Q3?

I'm sorry. I missed the first part. Can you repeat it?

Just in terms of your sales of good revenue, it was maybe a bit higher in Q2 because of inventory build, pipeline fill. But can you give an idea of the EGRIFTA product sales growth from Q2 to Q3?

Do you mean in terms of the sales to Serono, the product itself, not -- (multiple speakers). Yes, we mentioned in the first -- last quarter for the summer period we are anticipating a little decrease in sales of products during the second -- last quarter, which happened but in a less smaller proportion than anticipated. So it was approximately the same number of sales than the previous quarter. But the cost of sales are lower because we start to use new inventory off of API. So we're increasing cost of goods.

But, in terms of the gross sales of the product by Serono, can you give us an idea of how that changed?

No, we cannot. It is private information. The only thing we can report is the royalties. So you had an year-end increase of threefold, if you will, a 300% increase in royalties. It is pretty much in line with the increase of gross sales, if you will.

And don't forget, we have not received the gross sales for the third quarter (multiple speakers). So we will receive -- the only thing we have received today are the sales between April 1 and June 30. In the next quarter, the third quarter, we will receive the gross sales from them mid-November.

And a question for John. Where is your confidence in terms of comments that you made from last quarter regarding a CAD60 million to CAD70 million run rate exiting the year? That is probably tempered down a bit given that you expect maybe a bit lower new prescriptions? And also your suggestion that product sales could be north of CAD100 million next year.

So, if you remember, we said that if we exited the year around 4000 patients, that will give us grow sales of CAD96 million. Take away a discount and compliance, that is when we said we would be somewhere between CAD60 million and CAD70 million. If we end the year with 3000 patients, that will give us CAD75 million gross sales. If you exclude discounts and compliance factor, you are around CAD50 million. So today we are probably between -- anywhere between CAD50 million and CAD60 million is still realistic as a run rate going into 2012.

And any comment on where you could see next year sales being?

No, we're not providing any guidance on next year's earnings. Let us see what is going to happen in the last quarter, and then we will -- at the end of the year, we will come back with something more -- that makes more sense.

Okay. Great. Thank you.

(Operator Instructions). Adam Butts, RBC.

Just a couple of follow-ups. Firstly, what are the plans for Canada?

We're still evaluating. At this point we file ourselves, so we have the opportunity to launch ourselves. We are also currently looking at different partners.

So my gut feeling is that we will probably outsource it. I don't want to be spending too much of my time on Canada. I don't think that is the priority of the Company right now. So we're looking at different partners, but we haven't come to any conclusion yet.

Okay. And in terms of patent term extension, when would you expect to hear on that?

Patents? Probably early 2013, another 18 months.

So that is still expected to extend the lives to about 2020, correct?

Yes, right. Absolutely. And, again, just to remind everybody, we're talking about an administrative process here. So we have proven that we have never discontinued R&D, and by definition we can add up to five years, and that is what we requested, and we don't expect that not to be granted. So it's really just going through the system more than anything else.

And what is the status of postapproval studies?

So we had three postapproval commitments, if you remember. The first one is to come up and put the two vials of lyophilized drug into one. So that was then submitted to the FDA back in May, and we're expecting approval very soon.

The second one was the retinopathy. We will be starting that trial probably early next in the first quarter of next year. And, as you know, we will bear the cost of that trial. The last one was the registry, and that will probably start early next year, too, and we will be sharing the cost of that trial with EMD Serono.

So the cost of the registry, we think, is going to be about a total of CAD2 million cost that we will be sharing with EMD Serono and potentially other partners. Because our European partners will need the data probably for the submission in Europe, and it will help to have the registry in Europe also. So we anticipate that some of our other partners will pick up some of the costs, too.

Okay. Thanks.

Pooya Hememi, Desjardins Capital Markets.

Hey, thank you for taking my follow-ups. Just maybe going back onto that point on the registry. You're saying that it might be required by European regulators. Do you think that will cause any potential delays in the European approval?

No. I think what is going to happen is since the US came up with the registry, it is possible that Europe asked for the same thing. So what I said required -- thanks for coming back on that because we don't know if it is going to required. We anticipate that they will ask for something similar than what the FDA has requested. And having a design in the US will help us to just add patients in Europe without having to restart and redo the whole work again.

So that is why I think that Ferrer -- now we -- as of today, we had don't have any feedback from the euro regulators. We don't know what they're going to ask for, but if that is the case, then it will be easier to chip in and to participate in -- at least to piggyback the protocol.

Okay. Thank you. And also can you give us any comments on potential milestones? I know you previously said that maybe by end of 2012, is there any updated color you can give us on that?

At this point, no. I would like to see the face of the full-year 2011 before we start giving any guidance on 2012 and 2013. So, at this point, let's continue. We're on track to meet the numbers we talked about. Let's finish the year and see where we are at the end of the year.

Okay. And can you just maybe comment a bit on compliance rates? Because before I think when you gave you last results, you were saying maybe a 75% compliance. I think it might be a little higher than that. Can you just maybe give some color on that?

I would probably confirm those numbers right now. We are actually undergoing some market research with EMD Serono to look at that question exactly, and we don't have the results yet. We have heard somebody to look at the compliance numbers.

And also, sorry, for the other markets for new approvals, you are saying it will be the second half of 2012 or middle of 2012 that you will see the first approvals.

The first approvals could be middle of next year.

Okay. Thank you.

Europe will be in the back half. We expect European approval in the fourth quarter as disclosed, and we expect first Latin American countries by midyear.

Okay. Great. Thank you.

Speakers, there are no further questions at this time. I would like to turn it back to you for your closing remarks. Thank you.

Well, I would like to thank everyone for joining the call this morning. If there are other questions, you may reach either Luc Tanguay or even John later today. Thank you, once again, for joining the call, and have a great day. Thanks.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.