André Uddin from Research Capital Corporation thinks Theratechnologies (Theratechnologies Stock Quote, Chart, News, Analysts, Financials TSX:TH) is taking a step in the right direction, maintaining his “Buy” rating and $7.95/share (US$6.20) target price for a potential return of 141 per cent in an update to clients on Wednesday.
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 update comes after the company announced it had ceased its attempts to commercialise Trogarzo in Europe, instead returning its focus to its operations in North America.
“We view this strategic move by management as a wise move – TH is cutting its European losses sooner rather than later based on the poor pricing and reimbursement environment,” Uddin said. “Management can now focus all of its energy on driving the U.S. business which has much growth ahead.”
Trogarzo was initially approved by the European Medicines Agency in September 2019, with the commercial launch in Europe occurring a year later in Germany. However, the drug has faced issues from the beginning as Theratechnologies has had to negotiate pricing and reimbursement on a country-by-country basis.
As a result, Trogarzo only generated marginal net sales in Europe, with a contribution of less than two per cent of the company’s total revenue to produce losses from the beginning.
With its decision to pull out of Europe, Theratechnologies will return the commercialisation license for the drug to its original holder, TaiMed, which is to occur within 180 days of the initial announcement.
“While Trogarzo is an important and effective therapy for people living with HIV-1, the continued commercial sale of Trogarzo at the proposed pricing and reimbursement conditions by various European governments would have resulted in continuing losses for Theratechnologies,” said Paul Levesque, President and Chief Executive Officer of Theratechnologies in the company’s April 27 press release. “We intend to honour our regulatory obligations vis-à-vis patients who are currently receiving Trogarzo over the required period of time, and we will work with TaiMed to evaluate their options regarding the continued commercial availability of Trogarzo in Europe.”
The company’s decision to cease its European sales will have a topline impact in 2022, with Uddin projecting cash charges of between $1.5 million (all report figures are in US dollars) and $2 million, along with non-cash charges totalling approximately $6.5 million. However, management reiterated its previous guidance for revenue ranging between $79 million and $84 million.
The decision will also force Theratechnologies to restructure its Dublin subsidiary with some layoffs, though some global operations roles will be retained. Furthermore, Levesque reiterated that the decision would not have an impact on delivering Egrifta and Trogarzo to its North American patients.
Overall, Uddin projects the company’s 2022 revenue to come in at $81.7 million, with Trogarzo forecasted to account for 42 per cent of the revenue mix and Egrifta sales accounting for the rest, to produce a potential year-over-year increase of 17.1 per cent. From there, Uddin forecasts a jump to $95.3 million in 2023 for a potential year-over-year increase of 16.6 per cent before moving into nine figures with a $103 million projection for 2024, good for a potential year-over-year increase of 8.1 per cent.
From a valuation perspective, Uddin forecasts the company’s P/Sales multiple to drop from the reported 3.5x in 2021 to a projected 3x in 2022, then dropping to a projected 2.6x in 2023 and 2.4x in 2024.
Meanwhile, on account of heightened expenses pertained to R&D and SG&A, Uddin forecasts the company’s adjusted EBITDA to remain negative for the foreseeable future, with especially heightened spending in 2023 leading to an adjusted EBITDA loss projection of $29.3 million.
Similarly, Uddin forecasts the company’s cash flow and EPS to remain negative through at least the end of 2025, as well.
In Uddin’s view, potential catalysts for the company going forward include the release of second quarter financial results in July, the release of Phase 1 data for its ongoing TH1902 trial sometime in 2022, along with a NASH licensing deal either in 2022 or 2023.
Uddin’s valuation for Theratechnologies is a sum of the parts composition which takes into account the company’s commercial segment, factored in at a 2.9x 2022 EV/Sales multiple to the revised 2022 estimate, and the NASH project, which was factored in at a probability-adjusted NPV assuming a new 25 per cent success rate.
Theratechnologies has seen its stock price drop by 19.2 per cent since the start of 2022, unable to sustain an early peak of $4.11/share from February 1 as it dropped to a 2022 low of $2.93/share on April 7.