Theratechnologies Canadian rejection immaterial, but looks bad, says Byron

Byron Capital analyst Douglas Loe says he ascribes virtually no value to the Canadian HIV market, so yesterday’s decision has no impact on his valuation of Theratechnologies. But Loe says the decision is typical of the regulatory challenges Theratech has had in other, more important markets.Yesterday, Theratechnologies (TSX:TH) received some bad news as Egrifta, its tesamorelin application proposed for the treatment of excess abdominal fat in HIV patients with lipodystrophy, was rejected by Health Canada.

The Therapeutic Products Directorate of Health Canada determined that the risks of tesamorelin outweighed its benefits under the proposed conditions of use.

Theratech had submitted the The NDS for Egrifta to Health Canada in June, 2011. It was was based on the results from two phase 3 clinical trials, which enrolled more than 800 patients, and followed a marketing approval for EGRIFTA by the U.S. Food and Drug Administration received in November, 2010.

CEO Luc Tanguay said the company may not be done trying here.

“As a Canadian company, this is particularly disappointing,” he said. “The decision made by Health Canada puts Canadian patients at a disadvantage to United States patients where Egrifta was approved more than two years ago. We are now looking at our alternatives with our commercial partner, Actelion, which could include appealing the decision made by TPD. We will make our decision known within the next 30 days.”

Byron Capital analyst Douglas Loe says he ascribes virtually no value to the Canadian HIV market, so yesterday’s decision has no impact on his valuation of Theratechnologies. But Loe says the decision is typical of the regulatory challenges Theratech has had in other, more important markets. Loe says he expects that shares of the company will trade sideways until its regulatory status is resolved in Latin America and in Europe. In a research update to clients this morning, Loe reiterated his HOLD rating and $1 target on Theratechnologies.

Loe suspects the reason for Health Canada’s caution on tesamorelin is for the same reasons that E.U. regulators were cautious; concern over whether high blood levels of IGF-1, or drugs that elevate it such as tesamorelin and GH, could impact cardiovascular mortality. But the Byron analyst says the relationship between GH and IGF-1 and the cardiovascular system is actually well described in the medical literature, and his review indicates to us that there is little disruption of normal GH/IGF-1 levels.

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