Theratechnologies has price target cut at Echelon, keeps “Buy” rating

On the basis of extended timelines for clinical testing, Echelon Wealth Partners analyst Douglas Loe has lowered his price target on Theratechnologies (Theratechnologies Stock Quote, Chart, News TSX:TH).

Loe updated clients in a Tuesday review of the drug developer’s fiscal first quarter, where he kept his “Buy” rating but dropped his target from C$13.75 to C$11.00, implying a one-year return of 335 per cent.

Montreal-based Theratechnologies, which has FDA-approved HIV lipodystrophy drug Egrifta and multidrug-resistant HIV-1 mAb drug Trogarzo now FDA-approved, announced on Tuesday its Q1 2020 results ended February 29, 2020. The company posted net sales of $15.7 million, a 4.1-per-cent year-over-year increase the company attributed to a 17.4 per cent bump in sales of Trogarzo. Egrifta sales were slightly down
from the same quarter a year ago, while the company finished the Q1 with a cash position
of $34.8 million. (All figures in US dollars except where noted otherwise.)

“Our first quarter results show that we were off to a good start, particularly for Trogarzo,” said Paul Lévesque, President and CEO, in a press release. “Our job is now to ensure that the current pandemic does not slow down our momentum.”

“As we recently announced, we have enough inventory to meet market demand in territories where we market our products, our supply chain remains intact and our research and development activities are still progressing. This is quite an accomplishment under the circumstances,” he said.

Loe called the results mostly in line with his expectations, with reasonable year-over-year consolidated revenue growth, but stretched out clinical horizons have caused a bump in his forecast.

“Independent of FQ120 data themselves, which we consider to be sufficiently strong though not overly impactful on our longer-term TH investment thesis, we believe that development timelines for Egrifta's pending Phase III HIV liver fat reduction trial and the Katana Biopharma-acquired oncology portfolio (with both assets TH1902/TH1094 approaching Phase I stage testing) are likely to incrementally extend beyond our original expectations,” Loe wrote.

“As such, we are revising the discount rate embedded in our NPV and discounted EBITDA/EPS-based valuation methods (to 25 per cent from 15 per cent previously),” Loe said.

The analyst said the COVID-19 crisis could impact Theratech’s commercial prescription operations to some degree over 2020 but he is sticking by his view that the growth prospects are still positive for the company based on the competitive landscape medical evidence for both Egrifta and Trogarzo. Newer prospects TH-1902 and TH-1904 have so far not impacted his valuation for TH.

Loe said that while there are still limited competitors in the multidrug-resistant HIV1 infection space, there are a few on the horizon, including from ViiV Healthcare and Taiwan-based United BioPharma.

“Downstream clinical milestones for Egrifta and TH-1902/1904 could generate substantial value in our TH investment thesis, but near-term share value will likely be driven by Egrifta/Trogarzo revenue momentum and/or stability,” Loe wrote.

For fiscal 2020, Loe is calling for total revenue of $89.6 million and EBITDA of $10.2 million, rising to fiscal 2021 revenue of $163.7 million and EBITDA of $38.7 million.