Theratechnologies keeps bullish target at Research Capital

With its second quarter now in the books, André Uddin from Research Capital Corporation has maintained his Buy rating and target share price of $5.00/sh US ($6.40/sh CDN) on Theratechnologies (Theratechnologies Stock Quote, Chart, News, Analysts, Financials TSX:TH) in a new report.

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.

Uddin’s latest recommendation, published on July 15, comes after Theratechnologies came in slightly ahead of his revenue projections for the second quarter as they made $17.8 million instead of the originally projected $17.0 million, with lower rebates to payers and a higher selling price contributing to the slight economic bump.

Though the company’s revenue has continued to grow year over year (Uddin’s projections have Theratechnologies nearly doubling its revenue from $66.1 million in 2020 to a forecast of $127 million by 2025), the adjusted EBITDA has been dropping further and further into negative territory, with a predicted EBITDA of -$9.9 million at the end of 2021, progressing to a projected -$14 million by 2025.

However, Theratechnologies has a positive outlook on its development timetables, and with a projected cash runway of 12 months and $56.7 million in hand compared to $53.3 million in debts, research and development can remain on the same track.

“The first half of 2021 has been marked by progress across our R&D pipeline of novel compounds. Our Phase 1 clinical trial of TH1902 for the treatment of sortilin-expressing cancers progressed as planned during the quarter and we believe that we have developed a targeted peptide-drug conjugate that may potentially transform the way cancer is treated. In NASH, we concluded regulatory discussions in the U.S. and EU and now have a ready-to-proceed Phase 3 clinical trial design,” said Paul Lévesque, President and Chief Executive Officer, Theratechnologies in the company’s July 15 press release announcing the newest quarterly report.

Theratechnologies was originally set to launch its Phase 3 nonalcoholic steatohepatitis (NASH) trial for Egrifta in independently in the third quarter of 2021, but Uddin notes that, based on regulatory guidance from the FDA and the EMA, as well as the final design of the trial, the company has opted to try and find a partner to conduct the trial with.

“We view this move as positive from a cost/benefit standpoint,” he said. “We are pushing out our assumed initiation of trial to Q2/CY22 and revising our R&D estimates for FY21 and FY22. We are keeping our R&D forecasts for outer years intact for now until we get better clarity on terms of a potential partnering deal.”

In addition to its Egrifta trials, Theratechnologies also recently announced updates to its TH1902 Phase 1 trials in subjects with advanced solid tumors relapsed/refractory to standard therapy, with Uddin noting that the first phase of trial results to determine dose tolerability should be expected in the fourth quarter of 2021, with the second part of the trial, where subjects would be tested for indicators including TNBC, gynecological cancer, colorectal cancer and pancreatic cancer, would begin in early 2022.

The company’s results demonstrate that TH1902 has better anti-metastatic activity when compared to docetaxel alone when administered at an equimolar concentration in a lung metastasis cancer model expressing the sortilin (SORT1) receptor. With metastatic cancer having a low survival rate, the company sees the findings as a potential breakthrough.

“These new results are very encouraging for the development of TH1902 in SORT1+ cancers. It is known that SORT1-receptor expression increases as cancers progress and these new data confirm that by targeting the SORT1 receptor TH1902 could potentially be effective in the treatment of metastasis. Most importantly, these preclinical findings, if confirmed in humans, are promising signs that we may finally be able to inhibit hard-to-treat cancers with a more effective and better-tolerated treatment,” said Dr. Christian Marsolais, Senior Vice President and Chief Medical Officer of Theratechnologies in a June 21 press release.

Overall, Uddin believes the company is in a position to continue moving forward.

“Our valuation for Theratechnologies is based on a sum-of-the-parts methodology that factors in the company’s commercial segment and the NASH project,” he said. “To value TH’s commercial segment, we applied a 3.5x 2021 EV/Sales multiple to our 2021 total revenue estimate of US$72.7M discounted by 10% – equaling US$2.62/share. To value TH’s NASH project, we calculated a probability-adjusted NPV assuming a 15% success rate (was 10%) – equaling US$2.31/share.”

At the time of publication, Uddin’s price target represented a return of 36 per cent.