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Theratechnologies Inc. (THTX -4.18%)
Q4Â 2019 Earnings Call
Feb 25, 2020, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen, and thank you for standing by. Welcome to this Theratechnologies Conference Call. [Operator Instruction] I would like to remind everyone that this conference call is being recorded today, February 25, 2020, at 8:30 AM Eastern Time.
And I would now like to turn the conference over to Denis Boucher, Vice President, Communications and Corporate Affairs. Mr. Boucher, please go ahead.
Denis Boucher -- Vice President, Communications and Corporate Affairs
Thank you and welcome. Mr. Luc Tanguay, President and Chief Executive Officer of Theratechnologies, as well as Mr. Philippe Dubuc, Senior Vice President and Chief Financial Officer, will be the speakers on today's call. A Q&A period, open exclusively to financial analysts, will follow their presentation.
Before Mr. Tanguay begins his remarks, I've been asked by Theratechnologies to read the following message regarding forward-looking statements. I would like to remind everyone that Theratechnologies' remarks today contain forward-looking statements about it's current and future plans, expectations, and intentions, results, levels of activity, performance, goals or achievements or other future events or developments. In preparing these forward-looking statements, several assumptions were made by Theratechnologies and there are risks that results actually obtained by the Company will differ materially from those statements. As a consequence, the Company cannot guarantee that any forward-looking statement will materialize and you are cautioned not to place undue reliance on them.
Theratechnologies refers current and potential investors to the forward-looking information section of it's press release issued this morning and to it's annual information form dated February 24, 2020, and the risk factors section therein available at www.sedar.com and on EDGAR as an exhibit to our report on Form 40-F under Theratechnologies' public filings. Forward-looking statements represent Theratechnologies' expectations as of February 25, 2020. Except as may be required by securities laws, Theratechnologies does not undertake any obligation to update any forward-looking statement whether as a result of new information, future events or otherwise.
I would now like to turn the conference over to Luc.
Luc Tanguay -- President and Chief Executive Officer
Thank you, Denis. Good morning, everyone, and thank you for taking the time to be on the call today. Some may have noticed that our call is being held a week later than usual. This is due to the additional time needed for the US auditing required now that we are listed on NASDAQ.
Our last fiscal year was one of many accomplishments. In the last 12 months, we managed to obtain approvals for Trogarzo in Europe, to launch a new formulation of EGRIFTA, to list our shares on NASDAQ, to grow our revenue by 40% reaching over $63 million, to acquire a unique and highly promising technology platform in oncology, to announce our intention to launch the development program of tesamorelin for the treatment of NASH in HIV, and to manage record slightly positive EBITDA while investing significantly in Europe and in our development programs.
So, let me now talk about our sales for a moment. After our first full year of commercialization of Trogarzo, we ended just shy of $28 million in sales for this product. As it is the case with most product launches, some key learning were made since we launched Trogarzo. As a result, we made some adjustment last year to our selling approach for what is a unique and first-in-class treatment. We adapted our messaging based on the feedback received from the field, we increased our presence on social media and we implemented a pilot direct-to-consumer campaign that we decided to expand based on the results obtained just to name a few.
We started to observe the impact of those changes during the fourth quarter with the quarter-over-quarter unit sales increasing by more than 14%. As for EGRIFTA sales, we did register some growth in terms of unit sales, but revenue were slightly down due to a circumstance out of our control as Philippe will explain in a moment. Nevertheless, we expect growth to resume in terms of units and revenue given the introduction of EGRIFTA SV last November. EGRIFTA will remain a substantial revenue contributor with the introduction of the new SV formulation and after only few weeks on the market, the conversion rate from EGRIFTA to EGRIFTA SV is going according to plan.
As part of our plan to generate growth for both products, we increased and redeployed our sales force to cover territories differently. We concluded that we will be better served by making territories smaller, and by having few more sales representatives, thus allowing our sales force to spend less time traveling and more time detailing. The organization will also be supported by two additional medical science liaison. Trogarzo and EGRIFTA is rare products which require in-depth centric discussions with physicians.
Having a team of nine MSLs will allow the Company to reach more physicians more frequently, which is essential. As an example, medical science liaison staff can discuss the most recent result published in The Lancet HIV Journal on the effect of tesamorelin in HIV patient with NAFLD/NASH. In addition, more efforts will be made with patient organization. As you know, in HIV, patient play a pivotal role in the care they receive and in treatment decisions that made by physicians. We must ensure that patients are equipped with the right tools to have meaningful discussions with their physicians.
We already talked about our initiative on social media and on the web. Our analysis allows us to conclude that this is having a positive impact as we observed more traffic on our product-related websites.
Now, let's turn to Europe. As you know, Trogarzo was approved last September. While we already have patients treated in Europe through early access program, commercialization will in fact start when we obtain reimbursement in key countries. Our team in Europe is working to ensure that we secure a price, which will be optimal to support reimbursement. One will think that the process will be simple given the European Union, but in fact each and every country has its own review process and set of criteria for reimbursement. To that end, our European team is working closely with external consultants with vast expertise across Europe.
You can appreciate the kind of efforts that will be required over the next few months. And I have every faith in the team in place to make it happen and to initiate commercialization of Trogarzo in the first country this year with more countries to come thereafter. As I said, we are already recording revenues in Europe as some patients are being treated through early access program in some European countries. Our European team will also play a key role in supporting the development of our pipeline, which I will discuss in just a moment.
On the manufacturing side, for both Trogarzo and EGRIFTA, everything is running smoothly. The current COVID-19 outbreak in China does not represent an issue for the sales in the US. In fact, we have enough inventory at our distributor and at TaiMed in North America to meet market demand for several quarters. Of course, we will continue to monitor the long-term situation.
Everything I just talked about provide the basis for the revenue guidance we issued on December '19, forecasting between $83 million and $87 million in the sales.
As you know, our approach is to keep growing the Company through a well laid out plan. We started implementing this plan six years ago when we regained commercial rights to EGRIFTA back in 2014. EGRIFTA gave us a strong foundation to grow Theratechnologies. EGRIFTA, or more precisely, tesamorelin, is also now playing a role in our long-term plan for the Company. Our last year was not just about sales, it was also about rebuilding our pipeline for the mid and long-term future of the Company.
Last June, we announced our intent to pursue the development of tesamorelin for the treatment of NAFLD/NASH in people living with HIV. The decision was based on very positive results study conducted by Dr. Steven Grinspoon showing the effect of tesamorelin on liver fat and lever fibrosis. In fact, the study results were so impressive that they were published in The Lancet HIV Journal which also publish an editorial on the significance of those results.
To help us in the development of tesamorelin in NAFLD/NASH, we signed a long-term agreement with MGH and with Dr. Steven Grinspoon. The MGH crew, Dr. Grinspoon, who is Chief of the hospital's Metabolism Unit, will assist us in the study design, selection of optimal patient population, dosing, study duration and other safety matters and to participate if need be in the regulatory meeting with the FDA or the EMA.
As we stand, tesamorelin is the only product currently under development for the treatment of NASH in HIV patients. This give us a strong strategic advantage in term of competition, pricing and also safety as the product has been on the market for about 10 years. This is a market much larger than lipodystrophy and the clinical significance of NAFLD/NASH is widely recognized. In fact, NAFLD/NASH is reaching epidemic proportions in the US and HIV patients are particularly affected representing a sizable opportunity for us.
We submitted Type C meeting request with the FDA to validate some aspect of the Phase III trial. The FDA advised us that they will reply to our questions in writing as they have for our oncology program. We expect to hear back from the FDA in Q2 of this year. If the FDA position is favorable, we will then complete our Phase III protocol in order to initiate as planned the trial by the end of this year.
In the meantime, we are advancing with the bioequivalence study of the F8 formulation, which we intend to use in NAFLD/NASH. We just completed the pilot study, which means that we should be in a position to move forward with a confirmatory bioequivalent study in Q2. Of course, the other great opportunity for Theratechnologies lies in the oncology platform we acquired exactly one year ago today. We made a great transaction from a financial perspective, but more importantly, we acquired technology which could have a major impact on cancer treatment.
The in vivo and in vitro results that have been presented so far are impressive to say the least and more study results will be presented this year at major scientific meetings. This give us a great deal of enthusiasm and we look forward to initiating our first trial in human. Our goal remains to reach that stage by the end of the year and we are still on target.
Another important decision for us last year was to list our common share on NASDAQ. Given where our Company is now in its evolution, it became clear that we need to attract more attention from the US-based analysts and investors. To assist us in our effort to expand our presence with the US-based investors and analysts, I am pleased to announce that we have hired a Senior Director Investor Relations to be based in the US. This professional will soon be joining us after spending a number of years at one of the largest global US biotech company.
So on that note, I will now let Philippe present our results and I will come back after for few closing remarks. Philippe?
Philippe Dubuc -- Senior Vice President and Chief Financial Officer
Thank you, Luc. Good morning, everyone. I'm pleased to provide you with our 2019 year end results. During the past year, we recorded net sales revenue of $63.2 million, [Phonetic] which represents an increase of 40% over 2018.
Looking at EGRIFTA sales first, net sales were impacted by an unexpected charge related to government rebates not previously recorded by one of our distributing pharmacies. A portion of the unit sold to this pharmacy were previously incorrectly identified by the pharmacy as commercial patients. In fact, they were government reimbursed patients thus eligible to rebates. This adjustment was made to sales going back to 2017, and amounted close to $800,000. As a result, we recorded $35.5 million of EGRIFTA net sales in 2019 compared to $36.3 million in 2018. We are confident that the launch of EGRIFTA SV in late 2019 will have a positive impact on net sales in 2020 and beyond.
Moving to Trogarzo, net sales were up 212% in 2019 compared to 2018. Sales amounted to $27.7 million in 2019 in comparison to $8.9 million last year. As Luc mentioned, Trogarzo sales are still growing at a sustained pace and we expect that the trend will continue over the coming quarters. In fact, unit sales in the fourth quarter increased by approximately 14% over Q3 of 2019.
Growing Trogarzo sales in 2019 helped us record a slightly positive EBITDA of $323,000 despite our increased investments in Europe and higher R&D expenses related to the initiation of several development projects for tesamorelin and our oncology program. The unexpected rebate on EGRIFTA and the cost associated with the listing of our common shares on NASDAQ also affected our EBITDA.
Cost of sales increased to $26 million in 2019 from $13.2 million the year before. Higher cost of sales is a reflection of increased Trogarzo sales, which carry a higher cost of goods sold and the amortization of the asset related to the EGRIFTA transaction in 2018. Selling expenses were also higher in 2019. The increase is largely associated with the preparation work related to the approval of Trogarzo in Europe, the launch of EGRIFTA SV and the direct-to-consumer campaigns for both EGRIFTA and Trogarzo in the United States. In 2019, selling expenses reached $26.4 million compared to $21.6 million in 2018. Selling expenses also include a non-cash amortization of $2.4 million for the intangible asset value associated with the EGRIFTA and Trogarzo commercialization rights. In 2018, this amount represented $1.7 million, or $700,000 less.
In 2019, R&D expenses increased to $10.8 million compared to $8 million in 2018. The increase in R&D expenses is largely due to regulatory and medical activities in Europe, on EGRIFTA SV in the US, and to investments in the oncology program. These increased costs were partially offset by the decision of the FDA to release Theratechnologies from its last post approval commitments relating to EGRIFTA. R&D expenses also include medical affairs initiatives aimed at raising awareness among physicians and nurses who interact with patients living with multi-drug resistant HIV and lipodystrophy in addition to regulatory affairs activities such as handling of the European filing of Trogarzo and quality assurance.
General and administrative expenses grew to $8.3 million in 2019 compared to $5.8 million in 2018 as a result of business growth, increased activity in Europe, the listing on NASDAQ and additional investor relations initiatives. Financial expenses for the year were $5.1 million, which included a non-cash accretion expense of $1.7 million, and were offset by finance income of $1.1 million.
In 2019, we recorded a net loss of $12.5 million, or $0.16 per share, compared to a net loss of $4.7 million, or $0.06 per share in 2018. Our operations used $3.4 million in cash in 2019, which was mostly due to changes in operating assets and liabilities. Other uses of cash were the payment of interest on our outstanding convertible debentures, the payment of a $3.5 million commercial milestone to TaiMed and the acquisition of Katana in February 2019. We ended the year with a healthy cash balance of over $41 million.
Now, looking at our Q4 numbers, total net sales reached $16.4 million, representing an increase of 18% compared to the same quarter of 2018, when sales amounted to $13.9 million. As previously mentioned, sales of EGRIFTA were negatively impacted due to government rebates not previously recorded by one of our distributors. In the fourth quarter of 2019, EGRIFTA net sales amounted to $8.7 million compared to $9.7 million last year. However, unit sales to our distributor were actually up by close to 5% in the fourth quarter compared to Q4 of last year. Trogarzo sales in Q4 2019 were $7.7 million compared to $4.3 million last year, an increase of 79% and were up an 11.5% compared to Q3 of this year.
Cost of sales in Q4 2019 was also up and reached $7 million compared to $4.8 million for the same quarter last year. The increase is mostly due to the growth in Trogarzo sales, which carry a lower gross margin than EGRIFTA.
R&D expenses increased to $3.8 million in the quarter compared to $2 million for the same quarter last year. This increase is largely due to investments toward the approval of Trogarzo in Europe, the development of our newly acquired oncology platform, regulatory expenses related to the development of tesamorelin for the treatment of NASH in people living with HIV, as well as medical activities related to Trogarzo.
For the three-month period ended November 30, 2019, selling expenses were up to $7.7 million compared to $5.2 million for the same period last year. The increase in selling expenses is largely associated with the preparation work related to the approval and launch of Trogarzo in Europe, the launch of EGRIFTA SV and the direct-to-consumer campaigns in the United States. G&A expenses represented $3.3 million in the last quarter of 2019 compared to $1.9 million for the same quarter last year. As previously explained, the increase is mainly associated with business growth, the listing of our common shares on the NASDAQ and the expansion in Europe.
In Q4 2019, we recorded $1.2 million in finance costs compared to $1.3 million in Q4, 2018. We recorded a negative EBITDA of $3.2 million in Q4 compared to a positive EBITDA of $2 million in Q4 of 2018. This difference is mainly due to the ramp up of our European activities and the additional spending related to our NASH and oncology R&D programs. Also, contributing to the decrease is the negative impact on net sales of the unexpected rebates on EGRIFTA.
On a final note, I would like to comment on the agreements we've recently signed with the MGH and Dr. Grinspoon. The consulting agreement will run for three years and will secure access to Dr. Grinspoon and his lab, especially with respect to the planned development of tesamorelin in NASH for HIV patients. The license agreement calls for milestones related to the progression of the Phase III program and royalties of EGRIFTA following the receipt of approval for the treatment of NASH in HIV patients. The rate of royalty will be in the low single digits and will only be on sales above a certain threshold, reflecting the additional contribution of the NASH indication.
On this, I will now turn it to Luc for his closing remarks.
Luc Tanguay -- President and Chief Executive Officer
Thanks, Philippe. I would say that 2019 was a transition year for Theratechnologies. While sales grew by 40%, we implemented and delivered on key mid and long-term strategic objectives. In one year, we're able to rebuild our pipeline with a new program for tesamorelin in NAFLD/NASH and with a technology which holds great potential in oncology.
We are now listed on NASDAQ, which will help us to reach new investors and analysts in the US. In preparation for the European launch of Trogarzo, we've built our infrastructure by hiring talented people. We also managed to launch EGRIFTA SV in the US.
It's clear now that, in 2020, our job will be to deliver on our revenue guidance while moving ahead with our clinical trials for NAFLD/NASH and for our first compound in oncology. We have a busy year and a promising year in front of us. I can assure you that the entire team is ready and is up to the challenge.
So I want to thank you all for being on the call today and we will now take questions from the financial analysts.
Questions and Answers:
Operator
[Operator Instructions] Your first your first question comes from the line of Edward Nash from Canaccord Genuity. Your line is now open.
Edward Nash -- Canaccord Genuity -- Analyst
Great. Thanks very much and congratulations, guys, on the progress you've made over 2019, and then thank you for taking my questions. I did hear that you had mentioned, in the US, that there were nine MSLs and that you're targeting for smaller territories. I just might have missed if you said it, so how many reps will that now mean that you will have in the US with the smaller territories?
Philippe Dubuc -- Senior Vice President and Chief Financial Officer
Yeah. I'll ask Jovan Antunovic, our Chief Commercial Officer, he is with us today, so I'll let him speak on this if he want.
Jovan Antunovic -- Senior Vice President and Chief Commercial Officer
Sure, Luc. Thank you. Thanks for the question. Edward. We have 34 camps -- 34 territories in the US.
Edward Nash -- Canaccord Genuity -- Analyst
34. Okay. Perfect. And then, with regard to the EU, how was that -- what do you have there right now? I know obviously it will change as you get more countries, once pricing has been established in additional countries, but right now, what do you have there on the ground?
Luc Tanguay -- President and Chief Executive Officer
Okay. We have nine people at our head office in Dublin covering QC, regulatory, finance, of course, commercial. So we have different functions there. And we also have in the field at this point four MSLs and we intend to increase that number may be by two more MSLs depending on how fast it's going with the reimbursement process in each countries, but the intent is to, as soon as we launch process in one country is to have someone in the field to make noise about the product.
Edward Nash -- Canaccord Genuity -- Analyst
Okay. I'm sorry, you're going to rely only on MSLs in the EU territories?
Luc Tanguay -- President and Chief Executive Officer
No, eventually, we'll have camps as well once we are approved. But during the period where we negotiate with the -- because in some countries, it might be long. So, during that period, I think the only thing we're allowed to is to discuss science and the product. Christian would like to add something...
Christian Marsolais -- Senior Vice President and Chief Medical Officer
Just to clarify, we like the MSLs we hired in the last fall and there are a number of activities, medical advisor meeting in the different countries that have been initiated and we also have a Medical Director based in Dublin, and the medical team at the moment is very active.
Luc Tanguay -- President and Chief Executive Officer
And Edward, maybe Jovan would like to add something as well on this.
Jovan Antunovic -- Senior Vice President and Chief Commercial Officer
Yes. So just a general comment Ed, Europe and the US are quite different. Europe is very much socialized medicine. So I don't think you'd be looking to use a comparator of the US structure with the European commercial structure. That's my only comment.
Edward Nash -- Canaccord Genuity -- Analyst
Yes. I knew that. I was just absolutely just was curious what you had there already though. But thanks so much. And I guess a question for Philippe is just trying to, how we should be thinking about the R&D line through 2020 given I assume that the oncology program will start to make more headway on the clinical side? So what should we be thinking there on the numbers?
Philippe Dubuc -- Senior Vice President and Chief Financial Officer
Well, R&D, obviously, is going to go up this year and it's mostly related to both programs. Obviously, we'll wait to seek to hear from the FDA as to what kind of study we can design for the NASH in HIV, but both programs will be ramping up and it's mostly in 2021, where the expenses will really kick in.
Edward Nash -- Canaccord Genuity -- Analyst
Okay. Great. Thanks very much.
Luc Tanguay -- President and Chief Executive Officer
I just wanted to add that our target this year in term of EBITDA is to be around cash neutral. So around the zero number, plus or minus a few millions, but we want to keep a good financial position this year, that's our target, Ed. Thank you.
Edward Nash -- Canaccord Genuity -- Analyst
Fantastic. Understood. Thanks very much guys. And again, thanks for the overall update.
Luc Tanguay -- President and Chief Executive Officer
Welcome. Bye-bye.
Operator
Your next question comes from the line of Andre Uddin with Mackie Research Capital Corp. Your line is now open.
Luc Tanguay -- President and Chief Executive Officer
Hi, Andre.
Andre Uddin -- Mackie Research Capital Corp -- Analyst
Hi, Luc, Hi Philippe. Just a quick couple of questions here for you, what is the current pricing of both EGRIFTA formulations, is it the same?
Luc Tanguay -- President and Chief Executive Officer
The price for both products are exactly the same price, yes. So wanted to avoid any issue with the payers on this.
Andre Uddin -- Mackie Research Capital Corp -- Analyst
And what is the pricing?
Luc Tanguay -- President and Chief Executive Officer
It's currently it's $5,300 per month, yes gross, of course.
Andre Uddin -- Mackie Research Capital Corp -- Analyst
All right. And should we expect about a 5% increase in pricing?
Luc Tanguay -- President and Chief Executive Officer
We will have an increase this year, which will be in the single-digit, yes.
Andre Uddin -- Mackie Research Capital Corp -- Analyst
Okay.
Luc Tanguay -- President and Chief Executive Officer
5% is a good guess, might be a little bit higher than that.
Andre Uddin -- Mackie Research Capital Corp -- Analyst
Okay. And also, could you just talk a little bit about the switch strategy with the new SV formulation, how that's going, and if you could just talk a little bit about that?
Luc Tanguay -- President and Chief Executive Officer
Jovan, you can answer on this?
Jovan Antunovic -- Senior Vice President and Chief Commercial Officer
Sure, I think what we're planning for, as what we've done so far is, we've put a lot of emphasis on ensuring insurance coverage, with both the commercial payers as well as the public payers. We are essentially focusing all our commercial activities in messaging around the new SV formulation and that relates back to all the activities that we're doing around EPC digital campaigns, any activities that have been done by the camp team. And key part of it is that when we trained our sales force, we've trained them to not go into the offices and compare it to the EGRIFTA formulation. So essentially we're going in and launching this like a new product, which it is.
Andre Uddin -- Mackie Research Capital Corp -- Analyst
Okay. Just in terms of also your NASH trial, have you given that any more thought in terms of -- I know you're going to be running the Phase 3 trial for HIV patients. Again, have you thought about running another in just NASH patients?
Luc Tanguay -- President and Chief Executive Officer
Andre, we haven't concluded yet for going outside HIV. I think because this focus really to be on HIV. We think, as I mentioned in my speech, that we have a very favorable position in term of competition, pricing, the fact that we are in that field with no side effect for 10 years. I think we have a lot advantage to be at the moment in HIV only. We don't put aside the fact that we could at some point go outside the HIV, but I think, in 2020, we really want to focus and make sure we launch our Phase III trial this year, and that's the idea. Yes.
Andre Uddin -- Mackie Research Capital Corp -- Analyst
Okay. Perfect. Thank you.
Luc Tanguay -- President and Chief Executive Officer
Welcome.
Operator
[Operator Instructions] Your next question comes from the line of Brian Abrahams from RBC Capital Markets. Your line is now open.
Leonard -- RBC Capital Markets -- Analyst
Hi. It's Leonard [Phonetic] on for Brian. Thanks for taking my question. I just have a quick one. With Fostemsavir expected to launch in 2020, can you speak to how you might expect the competitive landscape to evolve and how that might shift your overall strategy? Thank you.
Luc Tanguay -- President and Chief Executive Officer
Jovan?
Jovan Antunovic -- Senior Vice President and Chief Commercial Officer
Thank you for the question, Brian. I think we are expecting Fostemsavir to launch at some point in 2020. I think in the big picture, we expect that that will create some competition. However, at the same time, we also expect that Fostemsavir will likely be paired with Trogarzo. So, we don't expect there to be any negative impact to Trogarzo. Again, it's going to be adding another mechanism of action for HIV patients. I think it's a positive overall and we're ready and we are planning for the arrival of Fostemsavir both in the US and in Europe.
Luc Tanguay -- President and Chief Executive Officer
Something else, Brian?
Leonard -- RBC Capital Markets -- Analyst
No. That's it from me. Thank you.
Luc Tanguay -- President and Chief Executive Officer
Okay.
Operator
There are no further questions at this time. I turn the call back over to the presenters.
Denis Boucher -- Vice President, Communications and Corporate Affairs
Thank you very much. Well, as there are no further question at this time, we will conclude the conference call. On behalf of everyone here at Theratechnologies, I would like to thank everyone for being on the call today. Have a very nice day.
Operator
[Operator Closing Remarks]
Duration: 35 minutes
Call participants:
Denis Boucher -- Vice President, Communications and Corporate Affairs
Luc Tanguay -- President and Chief Executive Officer
Philippe Dubuc -- Senior Vice President and Chief Financial Officer
Jovan Antunovic -- Senior Vice President and Chief Commercial Officer
Christian Marsolais -- Senior Vice President and Chief Medical Officer
Edward Nash -- Canaccord Genuity -- Analyst
Andre Uddin -- Mackie Research Capital Corp -- Analyst
Leonard -- RBC Capital Markets -- Analyst
