Theratechnologies is still a pass, says Leede Jones Gable

New quarterly results from Canadian drug developer Theratechnologies (Theratechnologies Stock Quote, Charts, News, Analysts, Financials TSX:TH) are promising but not enough to move the needle for Leede Jones Gable analyst Douglas W. Loe, who retained a “Hold” rating on the stock in a Friday research report. Loe said Thera’s core revenue generators in two HIV drugs continue to deliver strong EBITDA margins.

Quebec-based biopharm company Theratechnologies announced its third quarter fiscal 2022 financials on Thursday for the period ended August 31. The company focuses on endocrinology and oncology and has FDA-approved HIV lipodystrophy drug Egrifta in US sales as well multi-drug-resistant HIV-1 mAb drug Trogarzo, also US- and European Union-approved.

Egrifta sales for the fiscal Q3 were $12.9 million compared to $11.2 million a year earlier for a 14.7 per cent year-over-year uptick, while Trogarzo sales were up 19.7 per cent to $7.9 million. Total revenue of $20.8 million was a 16.6 per cent year-over-year increase and the company had a net loss of $7.5 million compared to a loss of $9.5 million a year ago. (All figures in US dollars except where noted otherwise.)

Thera said the revenue bump was helped by management’s decision to internalize its field force and strengthen its commercial operations in the US.

“We kicked off the third quarter with many exciting developments and spent the remaining period focusing on strategic growth, corporate alignment and shareholder outreach. As our top line results show, our efforts are making a difference,” said Paul Lévesque, President and CEO, in a press release.

On the clinical side, Theratechnologies has an ongoing 70-patient Phase 1 study of TH1902, a sortilin peptide-based cancer drug, and the company gave an update in July, saying researcher observed signs of efficacy in three heavily pre-treated patients. The company also had a publication on TH1902 in the journal Pharmaceutics with preclinical results demonstrating the in vitro and in vivo efficacy of the drug in inhibiting ovarian cancer and triple-negative breast cancer stem-like cells’ tumour growth.

“Our work with the SORT1+ Technology is getting noticed in the industry and was featured in the journal Pharmaceutics. We continue to believe that our program’s unique mechanism of action gives it a distinct position as a potential cancer therapy,” Lévesque said.

Summing up the quarterly results, Loe said the revenue increases from Thera’s two headline products in Egrifta and Trogarzo were a positive. He said Trogarzo’s revenue was its second-highest quarter since the drug was launched in 2018, with strong sales in the US but lower pricing and lower market penetration in the EU, which subsequently resulted in Thera’s decision last quarter to withdraw from that market. On Egrifta, sales were the highest yet for a quarter, benefitting from unit sales growth as well as price growth for the fiscal Q3. Gross margin for the quarter was $15.5 million, which Loe called strong in absolute and relative terms, with adjusted EBITDA coming in at $4.6 million. 

Loe noted that Theratechnologies management maintained in the Q3 update their previously-stated full-year revenue guidance range of $79-82 million, which would thus imply cumulative Egrifta and Trogarzo sales in the fourth quarter of between $20 and $23 million.

“Our model assumes that FQ423 revenue will be at the low end of this range but with FQ323 performing to that level and with no reason to assume that Egrifta/Trogarzo sales are destined to flatten in the near-term, revenue guidance seems reasonable to us while implying that our own F2022 revenue forecast of $78.7 million is conservative,” Loe said.

Loe said the decision to exit the EU with Trogarzo should be a minimal hit on revenue, although it does come with some non-recurring costs to be felt in fiscal 2023. On the road ahead, Loe said data can be expected sometime in the fiscal 2023 but that his model does not yet formally ascribe any market value to Thera’s oncology pipeline, while at the same time the analyst said he remains positive about the underlying pharmacology. 

With his maintained “Hold” rating, Loe reiterated a 12-month price target of C$3.75 per share, which at the time of publication represented a projected return of 30.2 per cent.

“Our key takeaway on Thera’s FQ322 update is that the firm’s core HIV-targeted specialty pharmaceutical portfolio is performing well and to expectations, with both commercial assets having potential for future growth on indication expansion and new formulation development,” he said.

“We will see where Thera’s TH1902 development initiatives go after final Phase I data are in the public domain. Excluding this program, we believe that Egrifta/Trogarzo alone have strong EBITDA and cash-flow-generating capabilities on their own, and this forms the basis of our current valuation,” Loe wrote. 

“For now, we are maintaining our Hold rating and PT of C$3.75 on TH, even though general market softness is driving TH share value away from our fundamental valuation and into positive-return territory. We remain cautious on TH1902, though preclinical characterization of the drug is certainly supportive of future clinical success,” he said.