Theratechnologies gets price target cut at Echelon Wealth

Lower than expected revenue growth for Egrifta has Echelon Wealth Partners analyst Doug Loe cutting his price target on Theratechnologies (Theratechnologies Stock Quote, CVhart, News: TSX:TH).

On Tuesday, Theratechnolgies reported its Q2, 2016 results. The company lost $498,000 on sales of $9.02-million.

“We are pleased with the revenue generated by Egrifta in the second quarter,” said CEI Luc Tanguay. “Indeed, revenues in U.S. dollars grew by 11 per cent quarter over quarter and by 24 per cent when compared to the same quarter last year. In addition, in the second quarter, we announced the agreement for the commercialization of ibalizumab in the United States and Canada. Shortly thereafter, we released preliminary phase 3 clinical trial data showing that 82.5 per cent of enrolled patients had reached the primary end point. These results gave us even more reasons to be very excited about this breakthrough treatment addressing multidrug-resistant HIV infection. If approved, it could start generating revenues as early as next year.”

The company noted that while Egrifta sales are in fact growing, the rate of that growth is lower than previously expected, forcing management to lower its guidance to $36-to $37-million from its previously expected topline of $46 to $49-million.

Loe is a long-term believer in Egrifta and says its medical benefits “are neither trivial nor cosmetic”. But short term, the analyst says he is forced to revise his estimates for the product downward.

“We are clearly disappointed that Egrifta US sales growth is expected by Thera to be modest over the next two quarters, but there is still modest virtue in guidance that predicts revenue stability for a drug asset that has experienced considerable operational challenges as recently as F2014, and we are optimistic that sustained Egrifta medical marketing efforts that espouse the (well-documented and data-driven) medical benefits of visceral adipose tissue reduction in general, not just in HIV lipodystrophy patients, will in time resonate with prescribing HIV specialists,” says Loe. “But ‘in time’ does not mean ‘in 2016’ and we are revising our Egrifta revenue forecasts accordingly. We now project F2016 revenue/EBITDA (margin)/fully-taxed fully-diluted EPS of $35.7M/$5.5M (15%)/$0.01, increasing to $47.8M/$10.7M (22%)/$0.05 in F2017 (still the first year in which we project ibalizumab sales), to $81.3M/$20.6M (25%)/$0.15 in F2018, and $138.2M/$38.8M (28%)/$0.32 in F2019, which is still the reference year in our discounted earnings valuation methodologies.”

In a research update to clients today, Loe maintained his “Buy” rating on Theratechnologies, but lowered his one-year price target on the stock from $6.75 to $5.50.