Theratechnologies Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sarah Technology's third quarter 2024 earnings call. We would like to remind everyone that all figures on this call are quoted in U.S. dollars. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session with analysts. Instructions will be provided at the time for you to queue up for questions. Following the analyst's Q&A session, investors wishing to submit a question may do so by clicking the Ask a Question link on the webcast platform. If anyone has any difficulties hearing the conference, please press star key followed by zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded today, Thursday, October 10th, 2024 at 8.30 a.m. Eastern Time. I will now turn the call over to Julia Schneiderman, Senior Director of Communications and Corporate Affairs at Sarah Technology. Julie,

please go ahead. Thank you, operator, and good morning, everyone. On the call today will be Sarah Technology's President and Chief Executive Officer, Mr. Paul Lavec, and Senior Vice President and Chief Financial Officer, Mr. Philippe Dubuc. During the Q&A session, they will be joined by Dr. Christian Marsolais, Senior Vice President and Chief Medical Officer, and John Leisure, the company's Global Commercial Officer. Before we begin, I'd like to remind everyone that remarks today contain forward-looking statements regarding the company's current and future plans, expectations, and intentions with respect to future events. Forward-looking statements are based on assumptions, and there are risks that results obtained by Thera Technologies may differ materially from those statements. As such, the company cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on them. The company refers current and potential investors to the forward-looking information section of Thera Technology's management's discussion and analysis issued this morning and available at cedarplus.ca and on edgar at .scc.gov. Forward-looking statements represent Thera Technology's expectations as of this morning, October 10th, 2024. Additionally today, the company is using the term adjusted EBITDA, which is not a financial measure under international financial reporting standards or US generally accepted accounting principles. Adjusted EBITDA excludes the effects of items that primarily reflect the impact of long-term investment and financing decisions, rather than the results of -to-day operations. Thera Technologies believes that this measure can be a useful indicator of its operational performance and financial condition from one period to another. The company uses this non-IFRS measure to make financial, strategic, and operating decisions. Reconciliation of adjusted EBITDA to net loss is found in our MDNA issued this morning, available on Cedar Plus and on Edgar at the web addresses mentioned earlier. Investors can also follow the company on LinkedIn and X, formerly Twitter, and sign up for alerts on Thera Technology's investor website at theratech.com. With that, I would now like to turn the conference over to our president and CEO, Paul Lavec.

Thank you, Judy. Hello everyone and good morning. I'm pleased to be reporting on Thera Technology's financial results for the third quarter ended August 31, 2024. As I explained during our second quarter call, we have embarked on a new chapter at Thera Technologies focused on commercializing innovative treatments. This strategic pivot, coupled with a cost structure that is fit for purpose, has enabled the company to achieve profitability and deliver on our commitment to shareholders to be adjusted EBITDA positive quarter after quarter. In fact, in a short period of time, the turnaround is nothing short of spectacular. As you have seen today, our third quarter did not disappoint and we have continued to demonstrate strength on the bottom line with an adjusted EBITDA figure of $7.2 million and a net profit of $3 million. Revenues for the quarter are also trending positively, up 8% from the same period last year and driven by our engine of growth, Agrifta SV. Enrollments, unique patients, and unit sales of Agrifta SV reached double digit growth year to date compared to the same period last year. In fact, in the last six months of Agrifta SV has recorded, the drug has recorded its best performance in recent history, capturing patients and new prescribers at the non-presentative rate. By highlighting Agrifta SV's unique value proposition, we've been able to differentiate the therapy from weight loss drugs where the focus is on BMI. Agrifta SV reduces visceral abdominal fat, which if left untreated can lead to serious medical conditions and is easily identifiable by measurement of weight circumference. Tragorzo remains one of the few options for the management of HIV multi-drug resistance. While it has been facing strong competition over the past year, new prescriptions and repeals of Tragorzo have stabilized and we do not expect further declines next year. Now, as previously announced in September, our CDMO responsible for the manufacturing of Agrifta SV implemented an unexpected voluntary shutdown following an FDA inspection in order to implement corrective measures to their plant. As a result, the production of two batches of Agrifta SV were canceled, thus creating pressure on current inventory. It is important to note that the corrective measures have nothing to do with the manufacturing process of our medicine, but rather with the environment in which the product is manufactured. I want to be clear that this situation will have no impact at the patient level in 2024. However, we believe it will have an impact on ex-factory sales in the fourth quarter and in turn total revenue for full year 2024. Given this and considering current transfer to Tragorzo, we are changing top line revenue guidance to be between 83 and 85 million dollars. This change does not reflect demand for Agrifta SV, which in recent history has never been so strong across all metrics, new patients, total unique patients and unit sales. The new guidance reflects a constrained supply situation. Despite the circumstances affecting our top line, we're happy to firm up guidance for adjusted EBITDA, increasing it to 17 to 19 million dollars from 13 to 15 million dollars. This is a result of adapting our cost structure to our new strategic direction of refocusing efforts on commercial activities. With a cash position of close to 39 million dollars and such a robust trajectory for adjusted EBITDA, we are in a strong position to take things to the next level. Looking to 2025, I want to share the latest information we have on the supply of Agrifta SV. Our CDMO has reconfirmed it will resume activities mid-October in a manufacturing slot for Agrifta SV schedule for the week of October 21st. Thera Technologies will file a prior authorization supplement or PES with the review division. The PES will include the remediation plan implemented by our CDMO and we expect to submit in early November. While we expect to have very limited supply of Agrifta SV in the latter part of November in terms of ex-factory sales, there will be still a six week inventory held at the wholesaler and specialty pharmacy level. This will be enough drug to meet patient demand until mid-January. ESD has up to 120 days to approve the PES and enable the batch to be released. As such, we took the precautionary step to modify or to notify rather the FDA drug shortage staff of the situation and also advise the market. We are working closely with all stakeholders and remain confident that any impact on patients in 2025 will be avoided. Moreover, we believe that in the first part of 2025, we will fully make up for sales not recorded in the fourth quarter of 2024. We will continue to update the market as things becomes available. Turning to the F8 formulation of Tessa Morlin, I want to provide an update on our timelines for a resubmission to the FDA. Following our type A meeting with the FDA, we believe we have addressed all of the agency's questions including the ones related to immunogenicity and microbiology and I'm confident these pieces are behind us. We expect to have the file completed shortly and intend to submit by the end of November. The FDS confirmed a four month review. It is also important to note that our CDMO for DFA is not the same as our manufacturer for the F4. Our team believes strongly in the benefits of Tessa Morlin as the only FDA approved treatment of its kind for people with HIV and Lypodystrophy and we are all hands on deck to bring this new formulation to market and to continue sharing our value proposition in new data. Next week, three VAR technology's poster will be presented at ID Week in Los Angeles. ID Week is one of the foremost scientific conferences in this field. One poster presents data linking excess visceral abdominal fat or EVAS to increase cardiovascular risk in people with HIV. While a second poster documents how use of Tessa Morlin to reduce excess visceral abdominal fat can lower cardiovascular disease risk in people with HIV. Another posters will report on the study design and baseline characteristics of the PROMIS US trial, an observational real world study of Ibelizumab in heavily treatment experienced patients with multi-drug resistance. We've also had the recent publications on Ibelizumab data in the Journal of AIDS. As people live longer with HIV and with greater exposure to entire retroviral medicines, they may experience higher amounts of excess visceral abdominal fat and risk multi-drug resistance. We look forward to sharing our findings with HIV clinicians and researchers into contributing to the scientific and treatment discourse on HIV. In keeping with our commitment to adding value through medical activities, I would like to provide an update on our ongoing phase one clinical trial of Pseudocytaxelzendusortide, our lead investigational PDC candidate. At this time, recruitment for both cohorts in advanced ovarian cancer has been completed. We've had no reports of DLTs, including neuropathy and itoxicity. One patient remains in the trial at the higher dose of 2.5 milligram per kilogram, and we plan to share results once the last patient has completed treatment and the overall data analysis is finalized. Our strengthened financial positioning, in particular our bottom line performance and cash position, has changed many things for us, opening the door to new possibilities and collaborations. We have doubled down on our efforts to find new products to market and to enter into partnerships. To this end, we've made significant progress in our search for new products, both in the US and in Canada. Based on our experience with Agrifta and Drogarzo, as well as the commercial capabilities we have built, we are uniquely positioned to in-license and bring to market innovative therapies that challenge the standard of care in rare or niche markets. This requires a specialized set of skills and experience managing regulatory and market access requirements and specialized patient support initiatives. We are confident that Thera Technologies has a compelling value proposition to offer. Our North American focus strategy is very clear and we are confident we can achieve our long-term objective of delivering sustained top and bottom line growth and value for shareholders. With this, I'd like to turn the call over to Philip, who will go over the period's financials in details. Philip. Thank you, Paul. Good morning,

everyone. I'm pleased to report that we've recorded another strong quarter, both on the top and bottom lines, with net sales of $22.6 million, or .4% growth versus the same quarter last year. Furthermore, I wanna highlight that the efforts to reorganize the cost structure of the company are continuing to pay off with $7.2 million of adjusted EBITDA, or close to 30% of revenues, and we recorded a net profit of about $3 million for the quarter, or six cents per share. I can now say that we've built a high-performing organization that can take on additional challenges, as just mentioned by Paul. For the third quarter of fiscal 2024, net sales of EGRFTA SV reached $16.7 million, compared to $13.2 million in Q3 of last year, which represents a 27% increase year over year. As mentioned previously, inventory levels have reverted to normal levels, and we should continue to see that going forward. For the nine-month period ended August 31st, EGRFTA revenues have grown 16%, which is supported by our key performance indicators, such as new enrollments and total unique patients. Tragars-Onet sales in the third quarter amounted to $5.9 million, compared to $7.7 million for the same quarter last year. The decrease was mainly due to lower unit sales in the quarter, as compared to last year, mostly as a result of competitive pressures in the multi-drug resistant segment of the HIV-1 market. This impact is stabilizing, as sales of Tragars-Onet to pharmacies have grown slightly in Q3, compared to Q2 of this year. In the third quarter of 2024, cost of sales came in at $4.5 million, down from $5 million in the same quarter of last year. EGRFTA gross margins for EGRFTA were 91%, which is in line with historical values, and Tragars-Onet margins were at 48%, consistent with the terms of the time agreement. Again, in the third quarter of 2024, the rigorous management of spending in R&D, selling, and G&A expense helped us achieve our fifth straight quarter of strong adjusted EBITDA, as established as an objective early in 2023. Adjusted EBITDA for the past four quarters was $17.4 million, which is why we increased our guidance this morning to $17 to $19 million for 2024. We expect adjusted EBITDA to be flat to slightly positive in the fourth quarter, compared to Q4 of last year, mainly because of the shortfall anticipated to the supply constraints discussed earlier. Although this shortfall will affect our revenues in Q4, patient supply will not be affected until mid-January, if at all, as there is inventory both at McKesson, our distributor, and at the specialty pharmacy level. R&D expenses, again, decreased substantially in the third quarter of 2024, compared to the same period last year, mostly due to lower spending on our oncology program, as well as lower expenses, following the near completion of our life cycle management projects for both Agrifta SV and Tragars-O. R&D expenses came in at $2.6 million versus $5.4 million last year for a 52% decrease. Selling expenses came in at $6.3 million for Q3, compared to $6.7 million for the same period last year. Selling expenses have stabilized in the past few quarters and should continue at roughly the same level in the next few quarters, as the focus on top and bottom line growth remains our main objective. G&A expenses in the third quarter of 2024, amounted to $3 million, as compared to $3.7 million for the third quarter of 2023, or a 19% decrease. The decrease in G&A expenses is largely due to our decision to focus on our U.S. commercial operations and on controlling expenses. Again, these expenses are expected to stabilize going forward, as evidenced by the similar level of expenses in Q2 of this year. As you can see from our reduction of expenses in R&D and G&A in the past six quarters, we have now right-sized the organization to ensure that we are well on our way in our journey towards showing strong growth in adjusted EBITDA. As a result of this, we are pleased to report adjusted EBITDA in the third quarter of $7.2 million versus $2.2 million in the same period last year, a significant improvement of $5 million, a combination of top line growth and realignment of spending. Net finance costs in the third quarter amounted to $2.4 million and include interest of $2.3 million on the Marathon Loan Facility. As per the credit agreement, we have initiated the reimbursement of the principal in August 2024 and the loan will be amortized over a 36-month period. Our strong operations generate solid cashflow, enabling us to repay the facility in the contracted amounts of $5 million per quarter. Even considering the first monthly repayment of the credit facility, we ended the third quarter on solid financial footing with cash, bonds, and money market funds at the end of the quarter, amounting to $39 million, an increase of close to $3 million over Q2 of 2024. We ended the quarter with $58.9 million drawn on the Marathon Facility for a net debt position of $20 million. I'm also happy to report that we recorded a net profit of $3 million or six cents per share in the third quarter of 2024. As Paul briefly alluded to in his remarks, we are revising our guidance this morning for revenues of 83 to $85 million for fiscal 2024 and increasing our guidance for adjusted EBITDA to between 17 and $19 million, even as we include the spending on our oncology program this year, pointing to the continued strong performance of our commercial operations for the remainder of the year. As previously mentioned, any additional spending on oncology after the completion of the phase one trial will be carried out through partnerships. So this program will no longer affect our adjusted EBITDA in 2025 and beyond. With that, Paul will be back for final comments, but first we will now open the call to take your questions. We will start by taking questions from analysts. Operator.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause

momentarily to assemble our roster. The first question today comes from Justin Walsh

with Jones Trading. Please go ahead.

Hi, thanks for taking the questions. I was wondering if you can provide any color on the remediation efforts being undertaken by the manufacturer and maybe outline some potential contingency plans if Agrifta SB manufacturing does not resume in mid-October.

Thank you, Justin, for the question. So it is a complex situation, but we are in discussion almost every day with the manufacturer so that we can confirm the sequence of events that I have highlighted in my speech. And it comes down to making a submission of the PAS filing that will be comprehensive, which will come from the full appreciation of the corrective measures. And as soon as we hear back from our CDMO and their interaction with their compliance division, that will give us all ammunition needed to go back to the review division and work with the drug shortage staff to engage with our review division so that they expedite the review. And quite frankly, they don't need to do it in 15 days. They don't need to do it even in 30 days. We have enough supply at the patient level up the way until mid-January. So we are confident that that period of time is long enough for the agency to approve the releasing of the batch that will be produced the week of October 21st. So, John, when it comes down to handling of the stock that we currently have, what do you have lining up?

Well, that's why we're managing inventory more closely in the fourth quarter, just to ensure that we have equal distribution amongst all our specialty pharmacy partners. And we're working with our patient support program then to ensure we get product to the right location for the right patient. So I think that's how we're managing that, Justin.

And just maybe to add that, Justin, we do have another slot that is reserved after the one in the week of October 21st. We actually have multiple slots coming up. So if that one doesn't happen, there's more in the back of it.

Got it.

Thank you, Justin.

I was wondering if there's any comment you can have on color for the timing expectations, so the BD activity and potentially agreed-up assets there? And that's it for me, thanks.

Yeah, well, I mean, we've been active for a certain period of time, and I cannot tell you what I cannot tell you. However, I just want to tell you again that this new situation that we're in, when it comes down to being stronger on the bottom line of the firm with a strong cash position, and you see the rhythm of the numbers now when it comes down to generating EBITDA. So we are in a much, much, you know, in much better position than we used to be. We believe in the capabilities that John and his team have built in the US. You've seen how robust the performance of EGRFTA is turning to be in an environment that was unsure a year ago. So we're gonna build on all of this, and quite frankly, it hasn't gone unnoticed by some of the biotechs in the US that might need a partner to advance their science. And I just want to stress again that this organization has a track record for establishing the science. So we do have medical activities on the ground. We're capable of conducting medical to medical doc, you know, sessions so that we can establish new medicines. And there are many firms of our size in the US that actually specialize in 505Bs. We sell innovation, and we're proud of that, and that's the type of product that we're after. So stay tuned for the next phases of announcement,

okay?

Thank you. The next question comes from Andre

Udin with Research Capital. Please go ahead.

Thank you. Hi, Paul, Philippe, Christian, and John. Just in terms of looking at innovative products that you've added to your portfolio, are you only looking at commercially available assets, and would those drugs be in license or required, and would you also build a Canadian sales force?

So, you know, we are looking, couple of things. We're looking at the territories we master the most, so obviously the US and Canada. We have capabilities in Canada, as you can imagine, being located here. If we need to actually set up a field force, either in the US or Canada, we will. Obviously, the value proposition coming from an in-license or acquisition has to be compelling. So we'll look at this very closely, and we want it to be creative as fast as possible. So that doesn't mean that there's not gonna be any period of time to wrap up, to get access and reimbursement, but to answer your question again, what is most important to us is the value proposition. We want to challenge standard of care, and if there are some drugs in the US that are deprioritized by big pharma or small pharma companies, we are interested in making acquisition of that too. So it could be a mix of what you just mentioned.

Okay, that's great, thanks Paul. And just in terms of Agrifta, do you plan on setting up a backup facility going forward?

Do you want to take that question? No, I don't think we'll need to. First of all, we're hoping to launch the F8 next year. We have another manufacturer, and what we'll do is build up a solid inventory so that we have one or two years of material. So it's so expensive to set up these manufacturers that it's much cheaper to keep more inventory than less.

Okay, and just to clarify, if you follow your PAS in early November, would the review actually take up to four months, or is based on the FDA shortage office, do you think it's gonna be shorter than that?

Well, we absolutely believe, André, that we have and we will have the information needed to accelerate the review. Unfortunately, they have not confirmed that to us, and it's not a surprise, quite frankly, because they have to hear back from the compliance division first. And the compliance division is working with our CDMO, and they need to see the finalization, the final report of their corrective measures. So this is a step-wise approach. What makes me believe that we're not going to face drug shortage at the patient level is that they have sufficient time to review our PAS submission until we actually run out of medicine mid-January. I would not understand why they would in that case, knowing that we could face drug shortage, I would not understand why they would actually take up their 120 days. That's specifically why the drug shortage staff exists. And all the divisions have to work together. So I'm absolutely confident that we'll find all the information needed to convince them to review our PAS filing in a period of time that will not actually lead to a drug shortage.

Okay, that's good. And just in terms of TH1902, can we get an approximate timeline on when the final data would be out? Is that going to be in 2024, calendar year, or 2025, do you think?

Christian, do you want to provide an update? Yeah,

absolutely. Absolutely, André. First of all, André, it's progressing well. As you know, we have some AEs when we're administering the drug every three weeks, now that it is the new regimen on a weekly basis with one week break, three weeks of treatment, followed by one week break at the highest dose, which is the 2.5 milligram per gig, which was similar, you remember, the 300 milligram per meter square every three weeks. We don't see any VLT, which is a very good sign. I chose that eventually we can probably give more drug. And in terms of the overall analysis, it should probably come towards the later part of this year.

Okay,

that's great, thanks.

That's

it for me.

As a reminder, if you would like to ask a question, please press star and one to enter the question queue. The next question comes from Luis Chen with Cantor. Please go ahead.

Good morning, everyone. This is Carvey on to Luis from Cantor. Thank you for taking our questions. First, can you discuss your strategy to ensure the sustainability of your EBITDA and bottom line performance that you've been able to generate the last few quarters? Secondly, given the current status on eGRIFTA supply from a growth perspective, how might eGRIFTA's sales growth look like in 2025 versus this year? Thank you.

So second question I'm gonna ask John in a moment, but Philip for the first part, do you wanna go ahead, please? Sure. So as

I said in my speech, Carvey, the operating structure that we have right now is really ideal for both for Garzo and eGRIFTA. So it's not that we've been cutting costs and to the detriment of generating new scripts and top line, we're really ideally positioned. So we see any growth in top line in the next year or two will flow straight to the bottom line. We're not gonna have to spend a lot more. The cuts that we took did not affect any of our operating performance. So we're in a really good position. John.

Yeah, so in terms of performance for next year, we do anticipate that sales would be a little bit lighter early in Q1, but we think that would just completely reverse so later in the quarter. So we have roughly two and a half weeks at our wholesaler. We have 30 days roughly at the specialty pharmacy level. So that's six and a half weeks of inventory. When that gets depleted down to very low levels, we'll just see very large orders later in the quarter. So assuming things go as Paul laid out, then Q1 should be basically a wash. So

this is important to stress again. X factory sales will be affected in the fourth quarter, which is not related to demand. And as soon as we actually have the release of that batch, we will make up for sales. And we have enough in the distribution pipeline for six weeks. So we have until mid-January to be able to serve our patients.

Got it, that's helpful. Thanks so much.

This concludes our question and answer session. I would like to turn the conference back over to Paul Levesque.

Before we turn over to Paul, there's a few questions on the webcast. So one is on the, on Tragarzo, John. Please give us more color on why you expect Tragarzo sales to stabilize in

2025. Well, as we look at unique patients and where they are trending, it has sort of stabilized in the last four to five months. Plus, you see sort of as we had more patients earlier on, as more patients drop off, we're getting more patients dropping off than we are coming in, you see a more rapid decline. But as that begins to stabilize moving forward, then we see things leveling off. So what we anticipated in terms of enrollments, we're right there. So we're not seeing any further decline in enrollments. And so we anticipate going forward that things have sort of leveled out where they are.

And there's a question also, how would you characterize your ability to meet the loan covenants with Marathon? So right now, you know, there's two main covenants, the liquidity covenant, which is at 17.5 million, and we have 40 million in the bank, so we're fine there. We're also building quite a cushion on the adjusted EBITDA line covenant because this is a rolling 12 month covenant. And as we continuously beat our own expectations, we're building more of a cushion. And there's a second part to this question, have you had discussions on waivers? We haven't because we don't need them. Obviously, if the EBITDA shortage goes into 2025, deeper in the year, we'll definitely have to talk to them, but that's really not the plan right now. So we're in very good position with the Marathon credit facility. And that's it, Paul, for questions. So you can...

Well, thank you everyone for attending the call today. Our bottom line is strong as demonstrated by nearly $12 million of adjusted EBITDA year to date and the increase to our guidance. No doubt we will continue to maximize our profitability through the sustained growth of the Griffith SV and the planned expansion of our product portfolio. We are seizing every opportunity to leverage our commercial experience and expertise across North America. And I look forward to updating you on key developments. Again, thank you for your support and

have a great day.

The conference has now concluded. Thank you for attending today's presentation.