Theratechnologies gets price target cut at Mackie Research

Mixed results from the company’s latest earnings has Mackie Research Capital Corporation analyst André Uddin maintaining his “Hold” recommendation for Theratechnologies (Theratechnologies Stock Quote, Chart, News TSX:TH) but lowering his target.

The analyst reviewed the company’s prospects in an update to clients on Tuesday, saying sector-wide valuations in the specialty pharma space are on the decline.

Montreal-based Theratechnologies specializes in the HIV with two launched products in the United States, a multi-drug resistant HIV drug, Trogarzo, and a drug for HIV-related lipodystrophy, Egrifta. The company also has an acquired oncology technology platform company, Katana Biopharma.

Theratechnologies delivered its financial results for the third quarter ended August 31, 2019, on Tuesday, reporting third quarter net sales of $16.1 million, a 19.3-per-cent uptick year-over-year, and ended the quarter with a cash position of $44.1 million, up from $43.1 million for the previous quarter. (All figures in US dollars unless where noted otherwise.)

“We are maintaining our HOLD rating (On Theratechnologies) as we do not expect TH to materially beat our revenue estimates or consensus in the near/mid term…”

“Just in the last quarter, we have made several announcements which will have a lasting positive impact on the Company. The approval of Trogarzo in Europe certainly is one of the highlights. The coming days and weeks will be no exception with the expected listing of our common shares on NASDAQ and the anticipated commercial launch of EGRIFTA SVTM in the United States,” said Luc Tanguay, President and CEO, in a press release.

The $16.1-million top line was lower than both Uddin’s estimate of $18.3 million and the consensus expectation of $17.9 million. Adjusted EBITDA of $1.6 million for the Q3 was better than Uddin’s $0.1 million estimate.

“TH reported weaker revenues but better earnings,” writes Uddin. “We are maintaining our HOLD rating as we do not expect TH to materially beat our revenue estimates or consensus in the near/mid term. The nearest near-term catalyst is an R&D day to be held in NY on October 23. We are lowering our TP from C$7.00 to C$6.50 as we are reducing our financial estimates for TH. Our valuation is based on applying a 3.5x EV/Sales to our new 2021 revenue estimate of $120.2 million discounted by 10 per cent. Specialty pharma valuations continue to drop.”

Drilling down, Uddin notes that Q3 sales for Trogarzo came in at $6.9 million, below his $9.5 million estimate, although management had said that the flat sales were due to inventory adjustments at the wholesaler level. Uddin contends that the growth rate for Trogarzo’s US TRx(s) is levelling off and that he is now lowering his sales outlook for the drug in the US and in Europe for the fourth time.

The analyst notes that on October 3, Theratechnologies presented new positive data from the TMB-311 study – which was a single-arm Phase 3 trial investigating the long-term efficacy and safety of Trogarzo plus optimized background regimen in treatment-experienced, multidrug-resistant HIV patients.

Uddin expects TH to end 2019 with revenue of $66.8 million and fully diluted EPS of negative $0.10 per share and to generate 2020 revenue of $98.5 million and fully diluted EPS of $0.10 per share. His C$6.50 target (was C$7.00) represents a projected 12-month return of 18 per cent at the time of publication.