Theratechnologies gets bullish new price target at Mackie Research

Calling the company’s pipeline underappreciated, Mackie Research analyst André Uddin raised his target on Theratechnologies (Theratechnologies Stock Quote, Chart, News, Analysts, Financials TSX:TH) in a report on Tuesday.

Montreal-based Theratechnologies is a hybrid specialty pharmaceutical and biotechnology company focused on the HIV field. The company has two products launched in the US: Trogarzo for multi-drug resistant HIV and Egrifta, the only approved drug for HIV-related lipodystrophy. As well, Theratechnologies is currently advancing Egrifta into a Phase 3 trial for nonalcoholic steatohepatitis (NASH) and has two preclinical oncology candidates one of which is expected to enter Phase 1 trials in 2021.

The company was incorporated in 1993 and began as a pure development-stage entity, and it wasn’t until 2010 that TH received FDA approval for Egrifta for the treatment of HIV lipodystropy, after which the drug was marketed in the US by EMD Serono until 2014 when Theratechnologies regained commercialization rights to Egrifta in the US. Then, in 2016, TH landed a 12-year distribution and marketing agreement to in-license Trogarzo from TaiMed for the Canadian and US rights, followed by deals to in-license the drug in the EU, Israel, Norway, Russia and Switzerland. In 2019, TH acquired oncology company Katana Biopharma.

TH’s share price had a high point of C$14.50 in mid-2018 but has since slid down to the C$2.00-C$3.00 range. The stock finished 2020 down 25 per cent and is currently down about seven per cent for 2021.

Uddin said his updated valuation of TH now includes the NASH asset in its Phase 3 trial along with the company’s commercial segment. On Theratechnologies’ drug prospects, Uddin commented that currently they’re not fully factored in by the market.

“We expect investors to start looking more closely at the pipeline which should lead to share price appreciation,” Uddin wrote.

Theratechnologies brought in a new CEO last April, Paul Lévesque, who according to Uddin has refocused the company’s US marketing team, taking them to currently about 25 sales reps as well as ten medical science liaisons and developing from a pure promotional effort to one more focused on medical education.

“The impact of this marketing change should result in seeing sales starting to pick up in H2 2021,” Uddin wrote. “TH closed a $46-million bought deal financing to develop its pipeline. Despite the dilution, we believe this was a smart strategic plan to build potential long term value for shareholders by advancing the pipeline.”

On Egrifta, Uddin said TH intends to file a supplemental Biologics License Application (sBLA) for a new formulation, the F8, likely upcoming in early 2022, which should reinvigorate Egrifta sales (as Uddin relates, the F8 is much easier to use for patients).

Uddin thinks Theratechnologies will generate full 2020 revenue and fully diluted EPS of $65.8 million and negative $0.30 per share, respectively, 2021 revenue and EPS of $86.3 million and negative $0.33 per share, respectively, and 2022 revenue and EPS of $108.8 million and negative $0.07 per share, respectively. The analyst expects TH to hit positive earnings of $0.27 per share by 2023. (All figures in US dollars except where noted otherwise.)

“We view TH as an out of the money call option, as we believe the company’s pipeline should start to see greater investor recognition as it advances. In a standalone company, developing an already FDA approved drug for a Phase 3 NASH program (which also has a clean safety profile and strong Phase 2 data), TH would likely have a valuation greater than its current market cap,” Uddin wrote.

With the update, Uddin has maintained his “Buy” rating while raising his target from C$4.00 to C$5.05, which at the time of publication represented a projected 12-month return of 77 per cent.

Last month, Theratechnologies issues preliminary fourth quarter and full 2020 numbers, saying the Q4 should deliver revenue between $18.9 million and $19.2 million, which would compare to $16.4 million a year earlier and would result in full 2020 revenue between $65.8 million and $66.1 million, an increase of between 4.1 and 4.6 per cent over 2019. The numbers would be the company’s highest quarterly and annual revenues to date.

TH’s Q3 delivered on October 15 of last year showed revenue of $14.0 million, down from $16.1 million a year earlier. The company said revenue was impacted by one-time items such as tighter inventory controls at the distributor level, higher than expected rebates and chargebacks and returns of Egrifta vials that had been removed from the market, with revenue from the replacement vials to figure into the Q4 results.

On the impact of the pandemic on TH’s operations, the company said in the Q3 press release, “COVID-19 continues to represent a challenge for sales representatives who, for the most part, cannot have face-to-face interactions with healthcare providers. On September 21, 2020, the Company announced a change to its sales infrastructure and a reallocation of resources focused on increasing the number of virtual interactions and educational events with physicians. Theratechnologies expects these measures will support efforts to grow sales of Trogarzo and Egrifta SV in the US going forward. The Company continues to make progress toward advancing its research and development pipeline. All third-party service providers working with Theratechnologies on these programs remain active.”