Three reasons to buy Theratechnologies from Mackie Research

Mackie Research analyst André Uddin is staying bullish on specialty pharma company Theratechnologies (Theratechnologies Stock Quote, Chart, News TSX:TH) after its latest quarterly results.

The analyst reviewed Theratechnologies fourth quarter in a report to clients on Tuesday and reiterated his “Buy” rating and $5.80 target price, saying the stock is cheap and the company is growing.

Montreal-based Theratechnologies, a commercial-stage biopharmaceutical company focusing on patients with orphan medical condition including those living with HIV, announced its Q4 and full-year 2019 results on Tuesday, showing record revenue of $63.2 million for the year, up 39.8 per cent from 2018. (All figures in US dollars except where noted otherwise.)

“We believe that TH should be bought for its growth, cheap valuation and particularly for its Phase 3 NASH-HIV program…”

On the year that was, Theratechnologies president and CEO Luc Tanguay listed TH’s accomplishments in 2019 which included obtaining approval for Trogarzo in Europe, launching a new formulation of tesamorelin, EGRIFTA SV, getting listed on the Nasdaq, acquiring a new oncology platform, launching a new program for tesamorelin, all while growing revenues by 40 per cent and recording an EBITDA-positive year.

“We ended the year with a company stronger than ever and with tools to sustain growth through our commercialized products and a promising pipeline,” said Tanguay in a February 25 press release.

For the fourth quarter, Theratechnologies, which released preliminary fourth quarter numbers in mid-December, delivered a top line of $16.4 million and a net loss of $6.4 million or $0.08 per share. The company’s sales for the quarter were negatively impacted by an unexpected charge related to government rebates, with the company ending up with an adjusted EBITDA loss of $3.2 million.

That loss was greater than Uddin’s estimate of negative $1.3 million, while the net loss of $6.4 million or negative $0.08 per share was greater than his estimate of negative $4.4 million and the consensus of negative $2.4 million. Uddin says that higher-than-expected COGS hindered the company’s bottom line.

Drilling down, Uddin pointed to Trogarzo sales over the Q4 which climbed 14 per cent sequentially to $7.7 million, while Egrifta sales were $8.7 million, below last year’s $9.7 million, with the above-mentioned one-time charge having its effect here.

Uddin said Theratechnolgies’ R&D investments are a selling point.

“As a percentage of revenue, TH spent 18 per cent on R&D compared to less than six per cent by the majority of peer companies –we believe this pipeline spend should pay off for investors. TH is to initiate a Phase 3 trial with Egrifta in HIV patients with NASH by the end of 2020. TH has one cancer candidate advancing into a Phase I trial in H2 2020,” wrote Uddin.

“We believe that TH should be bought for its growth, cheap valuation and particularly for its Phase 3 NASH-HIV program,” he wrote.

Looking ahead, the analyst thinks TH will generate fiscal 2020 revenue and fully diluted EPS of $83.9 million and negative $0.06 per share, respectively.

Uddin’s $5.80 target price represented a projected 12-month return of 74 per cent at the time of publication.