Theratechnologies Inc. (TH) Earnings Call Transcript & Summary

Hi, good morning, everyone. This is Rebecca Kotkin with Credit Suisse's Healthcare Equity Capital Markets. I'm pleased to be joined today by Paul Lévesque from Theratechnologies, who will commence into a presentation shortly thereafter. As a reminder to those that are joining via the web, you can ask questions via e-mail. My e-mail addresses is rebecca.kotkin@credit-suisse. I'd be happy to moderate those questions after Paul's prepared remarks. And with that, let me hand it over to Paul Lévesque, CEO and President of Theratechnologies.

Thank you very much, Rebecca, and welcome, everyone, for joining today. It's always exciting to have a chance to review who we are. So I'm going to try to have an update on certain things for people today, but also an overview so that people who do not know Theratechnologies and the exciting programs that we have, yet they have a good understanding of who we are and where we come from, but certainly, where we are heading to. So before anything, I always ask people to refer to the forward-looking information before making investments. Obviously, our business is -- comes with risk, and people should understand the risk before making their own decisions. So Theratechnologies is a company that is based in Montreal, has existed for a certain time. It was founded in '93. We have about 165 employees. We are a commercial stage biopharma with significant pipeline candidates with significant potential. I'm going to go over that. We are listed on the NASDAQ and TSX, in Toronto. Stock price today is around $3.5. We have 95 million shares outstanding, market cap about $325 million, cash situation is $52 million, and we had a convertible coming up at midyear 2020. So that's a snapshot of the company. So the best way to describe Theratechnologies is to start with our promising R&D pipeline. So we had a late-stage program in NASH. Incidentally, we have a protocol that's been approved by Europe and by the U.S., so we're ready to go. And we have an early stage oncology platform that I will describe extensively that has huge potential. And we have a commercial business in HIV. One is indicated at -- EGRIFTA indicated for lipodystrophy in HIV patients. And Trogarzo has an indication to control the viral load that is on control for patients facing resistance. And we're always looking at new mode of administration to improve the delivery of Trogarzo and EGRIFTA. We've done it several times already for EGRIFTA, but we're working on IM formulation for Trogarzo. As a snapshot of the company, when it comes down to its pipeline, you've got it here. So in oncology, we have TH1902, that is currently going through Phase I, first in human after exquisite data being presented to the agency, which gave us a fast track recognition. And we have follow-up compound, which is 1904. We are ready to go, as I said, for NASH, and we have a new formulation that will be filed in the coming months. And then we have, from an HIV point of view, this IV push formulation that is in development that will be introduced next year. We're working on an intramuscular formulation that will be more convenient for patients. And we also will benefit from the same more concentrated F8 formulation in lipodystrophy, and that's going to be coming prior to the NASH completion. So we are excited about that. So let me start with maybe the most exciting program that we have in our pipeline, and it is this platform that we have in oncology. And I call it a platform because there's a reason for that. So first of all, it comes with the identification of a receptor. It's a very, very important receptor, and I'll cover that. It's called the SORT1 receptor. And we know that this receptor is highly expressed in many types of cancer, and is associated with very poor prognosis and decreased survival. So this is just like a door to the cancer cell that we have identified, that we have studied and that we understand well. So what we did is that we designed a peptide, and that peptide is a fit-for-purpose peptide so that it's just like, if you will, the key to that door. If the door to the cell is SORT1, the peptide is that key. And on that key, we have attached TH1902, docetaxel payload that is rapidly internalized within the cells and obviously can be delivered where it counts, where it matters within the cells. And we know that by doing so, we bypass key resistance mechanisms that the cancer cells have to protect themselves. So TH1902, as I said, is in the clinic at this time, received a fast track designation, and we're just completing now the dose escalation part, and I will cover that in a moment. So one can ask, tell me more about the SORT1 receptor. Is that prominent? Is that something that is marginal? Or where do you find it? Well, we have plenty of data now that shows that this SORT1 receptor is very, very significant, and it's highly impressed in many cancer cells compared to normal cells. And we know, as I said before, that the more aggressive the cancer -- the more advanced the cancer, the more expression that you have of that receptor. Obviously, it varies in terms of concentration of the receptor but we have found a high level, so anywhere between 30% to 90%. In fact, in melanoma, it's almost 100% of SORT1 expression. And what we're doing at the moment is that we keep on substantiating the expression of that receptor by having more samples so that we can be sure at a high level that the expression is high in all of these cancer types, but for the information that we have at the moment is that this is not a marginal receptor, it's actually a very prominent one and exploiting it will lead to success in treating cancer cells. In fact, what you have here is more information. The more advanced the cancer, the more expression of that SORT1 receptor you have, the staining here is brown. So as you can see in normal cell, you can barely see any of those SORT1 receptor expressing themselves, but in metastatic cancer, you have a huge amount of SORT1 receptor expressing itself. And on the right-hand side, what you see is the association between the high sortilin expression and the survival. So there's a correlation with high SORT1 expression and poor prognosis in terms of cancer. And in this case, it is associated to triple-negative breast cancer. So very important receptor is the message that I would like you to retain on this slide. Now let's talk about our peptide for a moment. So the peptide is not a small molecule. It's not a very large molecule like the [ anticlonal ] antibody. What this is all about is a midsized molecule that actually has been designed with a number of amino acids that actually is, as I said, that key to that door so that we can actually get into the cancer cells and be internalized. So the first one that we have conjugated is TH1902, it comes with 2 molecules of docetaxel. And as you know, docetaxel is widely used, widely appreciated by doctor, but it comes with a great deal of inconvenience because you cannot actually bring docetaxel where it counts effectively, which is in the cancer cells. And the more you have this floating in the blood stream, the more side effects you're going to have. That's what we're trying to improve. So we have designed that peptide that does the trick. We have a linker that is specific to docetaxel. And as I said, we have a cytotoxic payload in this case, docetaxel 1904 is doxorubicin. It's the follow-up compound that we have attached to our peptide. So here, you have something that tells you how it works. And I'm going to keep it high level, but you're going to see it's pretty compelling is that you've got that SORT1 receptor. We've got a peptide that actually can stick to it by actually forming that complex of a ligand receptor. It's being internalized via the endosome and then it gets released within the cell. So very, very effective way to get within the cancer cell. And we're very, very proud of that because, as I said, the SORT1 receptor is very prominent in many cancer types. The more advanced it is, the more of these SORT1 receptors you have and then the peptide can attach to it, get internalized, release the payroll. On this slide here, we basically show unlike docetaxel that -- the fact that we have this peptide and this door to the cancer cell, we bypassed the MDR1 mechanism, which is a way for the cell to protect itself. So what you see here is that docetaxel floats around and gets into the cell by itself. But a lot of it is pumped out of the cancer cell through that mechanism of resistance that cancer cells have. If you actually block that mechanism of action so that the docetaxel would not be pumped out, you can see on the right -- on the left-hand side that you do increase the concentration of docetaxel that you're going to find within the cell, indicating that the MDR is playing a role in preventing docetaxel to get into the cell effectively. Now TH1902 is in a different place because it bypasses this MDR receptor. Why is that? Well, because it's using a door that is a SORT1 receptor. So very, very compelling data. And in this case, whether you actually inhibit the MDR1 mechanism of action, it doesn't change that much what's happening, TH1902 gets concentrated in a very significant way within the cell. Now another very exciting thing that we actually published in a very important journal recently, is vasculogenic mimicry. So let me keep this very simple again. Cancer cells, especially when they are advanced, they need to protect themselves. They need to continue to survive. And they are developing mechanisms of actions to do so. And one of the mechanism is to say we're going to be developing our own channels so that we can feed the cancer cells effectively. Well, what we showed with this TH1902, is that we can inhibit the formation of those channels, indicating again that we give the cancer cells a hard time because of the way this peptide drug conjugate does its trick specifically on cancer cells. So this is very exciting, and it was associated to again, the TH1902, we believe exquisite data as part of the preclinical package we submitted to the agency. This is maybe one of the most important slides because, again, it shows what's happening. If you've got the TH1902 concentration in the bloodstream as a function of time. Obviously, it starts very high and it actually going to be going away as a function of time. But the release of free docetaxel in the bloodstream for all that period of time is very, very low. And that is super important because this is the free docetaxel that is associated, the side effects that the patient cannot actually cope with and that is leading to cancer treatment being stopped. So this is, again, a proof of concept that the docetaxel that is attached to our peptide is attached, gets to the cancer cells, is not released in the blood stream the same way and should not trigger the same amount of side effects and therefore, to be easier for the patients to go through the treatment, thus reaping the benefits of the efficacy. So now let me get into the data, because the data are very, very exciting. So what you see here are in pancreatic cancer -- two actually piece of data. The first one is associated to low-dose docetaxel, it's a quarter of the maximum tolerated dose of docetaxel and the other one is at 1:1. So maximum tolerated dose of docetaxel. Pancreatic cancer, as you know, very difficult to treat. At the quarter of the dose, take a look at the efficacy of TH1902 compared to docetaxel. Docetaxel has barely more efficacy than the peptide, the vehicle. Whereas when you actually take a look at TH1902 a great deal of efficacy, and the efficacy seems to be sustained even at the quarter of the dose. Now if you go a full steam ahead at maximum tolerated dose, you see the regression of the tumor for TH1902. So very, very compelling data for a very difficult cancer tumor to treat. If you actually take a look at endometrial cancer in this one, I think I've mentioned before that this is one of the cancer where we see very high expression of the SORT1 receptor. Well, this is very, very compelling. Again, when you see the difference at the quarter of the dose, you still -- you see some efficacy related to TH1902, barely no efficacy with docetaxel. And at 1:1, the maximum tolerated dose of docetaxel or the equivalent for TH1902, you see a great deal of efficacy as measured by the tumor volume. And what is stunning in this case is that the efficacy is sustained, which is not necessarily what you would actually expect. So there's definitely something going on. One more in melanoma. So as you can see, again, in this case, we're talking about the docetaxel 15-milligram per kilogram and the equivalent of TH1902. And you see obviously some efficacy at that dosage for docetaxel, but you see regression of that tumor with docetaxel 1902. So definitely something going on here. And obviously, this is why we are very excited because this was the preclinical work that led to going first in human in the first quarter of 2021. So let me now explain to you where we are and the way it works because this is the questions we're getting very often by investors saying, okay, now tell us what's happening? Well, we are in the Part A dose escalation part. This is the first part of 2 parts in the Phase I. That Part A is meant to identifying the maximum tolerated dose. You could have early sign of efficacy in the odd case, but that's not what that phase is designed to actually provide. What we're doing is that we're dosing patients, all comers in a very prescribed way by the agency. So the methodology doesn't come with any creativity. You just take all comers, meaning that you don't even know if this is a cancer that should respond based on SORT1 expression. We actually can measure the SORT1 expression only after the fact not to select the patient. Once the maximum tolerated dose will be identified, we will actually do what we call the Part B. For the -- at the moment, what we have lining up is basically a bit of a basket trial where we would actually have TNBC, gynecological cancers, endometrial and ovarian, colorectal and pancreatic cancer. This can be changed along the way because of the fast track, we can have ongoing discussion with agency. And based on what we see in the Part A, we could trigger some changes to this. But this is the plan at this time. We are on track for finalizing our maximum tolerated dose, probably at the end of this year, early 2021 and '22 and start our basket trial right after. So this one is evolving very nicely, and we're very, very happy with what we've seen so far. So what have we seen so far? Well, I mean, we released that information recently, but let me state it again. We have many patients or at least several patients that have been dosed over a 300-milligram per square meter without side effects. We had some toxicity that was associated to the 420. And as per the protocol at 420, having seen some side effects, we need to actually dose 3 more patients at 420 milligrams per square meter, and this is what we're doing at the moment. Let me just state something that is very important for everyone to remember, 420 milligram per square meter is about 2x the maximum tolerated dose of docetaxel. That's a high level of docetaxel. And if you recall the data that I just presented in the animal model, we showed a very interesting efficacy at 1/4 of the dose and at 1:1. So obviously, if we can go as high as 2x, it should open up to additional efficacy and that's what we are obviously looking forward to proving. But that's already a very, very large amount of docetaxel. So in a nutshell, that's where we are. We had -- as I said, we kept on increasing the dosage. We have patients that have received 300, which is 1.5x, that's not experienced any grade 2 adverse event. The last patient dosed 420 did experience some side effects. And because of that, the next 3 patients will be dosed at 420-milligram per square meter, which is 2x or approximately 2x the indicated dose of docetaxel. And we will carry on this until we find our maximum tolerated dose. Once we have it, we will announce what it is. This is probably the next type of communication that investors can expect. It's right in front of us, and that will inform the Part B of the trial. Let me finish on this slide because this is a very, very important slide. I hope that I've been efficient in conveying the full potential of TH1902. But TH1902 is only the tip of the iceberg because the platform is very, very, very powerful. So let me just tell you the type of thing that we want to investigate. Dosing patients at the maximum tolerated dose is normally the way you do things in oncology. But because of the safety profile of TH1902 and the efficacy at lower dosage, we need to investigate maybe and challenge the dosing schedule. Instead of dosing patients with maximum tolerated dose every 3 weeks, should we actually start investigating dosing every week at the lower dose. That's the type of thing the platform allows us to do. Better understanding the MOA, the mode of action of our conjugate when it gets into the cancer cell would be relevant. So what is the fate of the conjugate. So we're going to work on this. And maybe the most important point is the third one. If SORT1 is a door to the cancer cell, if the peptide that we have designed is a great key, could it be a carrier for a variety of things that we can attach to it, meaning additional payload, meaning potentially siRNA type of molecule as well that could get into the cell and silence the expression of a protein that is involved in cancer. So you see now or you should see the very wide application that this platform can have. Obviously, we will entertain combination therapy with immunotherapy in particular. And obviously, having the companion diagnostic for identifying the SORT1 level before you start treating would be very relevant as well. So these are the things that I want investors to understand we have an analyst to say, wow, the application here is spectacular. And I want people to understand that our strategy is very simple. We want to accelerate the development of TH1902 in one cancer. Then we want to follow up with maybe 3 or 4 additional cancer. And then we want to see what is it that we can conjugate with our peptide that will have a broader application because all of this exploit the SORT1 receptor, which we believe is very prominent. So I hope that people understand what is it that we're trying to do and can share the excitement that we have for 1902, but also the platform altogether. Let me shift gears now and cover what's going on with tesamorelin. So tesamorelin is already on the market. It's been on the market for 10 years. It's a drug that has a safety profile that we know. And this is the drug that is late stage because we're ready to go now and dose some patients to start the Phase III clinical program to actually get an indication in something that is very large, unmet medical need, called NASH. So let me review a few things here. First of all, the mode of action. Our experts whenever they describe that, they basically say that tesamorelin carries 2 actually mode of actions, dual impact on the liver cells. First of all, a direct effect. Because we actually get the pituitary gland to resume producing endogenous production of GH. What is important for people to understand is that growth hormone if it is done at too high of a level, then you lose all kinds of benefits. And in our case, because it's a growth hormone releasing hormone, the approach is way more subtle and you just stimulate the endogenous production of GH, which is totally different because the benefits are very compelling. And we don't mess up with IGF-I. So we do have the benefits associated with what we call indirect effect of IGF-1, which comes with another slew of benefits. So dual mode of action for tesamorelin, which is the reason why we believe we have something that can win and be a treatment for NASH. Now in our Phase II clinical program, we produced a very interesting data when it comes down to liver fat reduction. Liver fat reduction is very important and the delta between the placebo group was 37%. So very compelling liver fat reduction. In the trial, we had 35% of the patients that actually resumed to having normal liver fat level, which is about 5%. So very, very good performance over there. And maybe the most important point is basically the association with the fact that if you have over 30% liver fat reduction in any population that you treat that is highly correlated with improvement on fibrosis and on the NAS score. And that is very important because in our trial, 60% of the patients actually achieved over 30% liver fat reduction. So there is a very strong correlation that the KOL believe that is linked to the mechanism of action and the reasons to believe we can actually win and get an approval for NASH. And we had delayed progression of fibrosis. In this case, the patients were treated only for 12 months. What we intend to do moving forward is to have the patients treated for 18 months. So we think that we're going to get even more efficacy and impact on fibrosis as well as the NAS score. So what we have said all the way until this point is that we are ready to go. We want to use as part of the trial, a new formulation that is in development and that will be submitted to the agency in the next couple of weeks or months. It's the F8 formulation. So it's a highly concentrated formulation that will allow a very small volume of injection. Currently, the F4, the volume of injection is 0.35 ml. This one is going to be 0.16. So we think that this is going to be very conducive to be competitive in the marketplace, assembled in a pen. We have announced that we want to have a futility analysis after the first 400 patients are dosed. The futility analysis is basically a point that allows us to eliminate what I call the worst-case scenario. So the scenario of having a high probability of carrying a negative trial. So we want to take that out of the picture for investors. You see also the number of patients that we intend to have, it's 1,100 patients. 75 to 100 living with the virus because we are committed to the community. So -- and once we have our approval after the Phase III trial, we will obviously carry on with more patients to pick up cardiovascular benefits that will come over time. What we have announced is that we want to stop for a moment or pause and identify if we can have a partner that would come with capabilities or resources and team up with us with this. We are interacting with some of those parties at this time. And in parallel, and I've said that before, and I will repeat it, we are investigating how we can fund the trial whether or not we have a partner. So our first option is to have a partner, it would be great. Having a partner comes with a slew of difficulties because, obviously, you need to align on different things, time lines, who's doing what, but this is our first option. But in parallel, our commitment to the trial is to say how can we go step-wise and actually fund that trial and ensure that we can come with a solution in this dire area of unmet medical need because I think a 3% to 5% to 8% of populations are deemed suffering from this. And I think that having a solution in our hands, we've got to get going with the program. Rapidly here, when it comes down to the franchise in HIV, we recorded sales of $65 million in 2020. We have 2 assets. Trogarzo is commercialized in the U.S. It's a licensed medicine. It's commercialized in the U.S. and in Europe. Incidentally, we've got good news coming from Europe on in Italy that came in recently. We are fully reimbursed at a good price. And EGRIFTA is commercialized in the U.S. And what we're doing at the moment is a lot of education. We raised the understanding of doctors for lipodystrophy, for the viral load that is not controlled properly for HIV patients. You understand that after 40 years of treatment, there's much more resistance coming up in that cohort of patients that have been treated for a long period of time. So they need a new solutions. Trogarzo is one of them. It's a long-acting one. That's where the market is going, and we want to be developing an IM formulation. So it's directionally correct. In lipodystrophy for HIV patients was seen as a cosmetic issue. Now with all of the discussions around NAFL and NASH, people understand that this patient population that is suffering from lipodystrophy will not age nicely because they will carry a very high risk of cardiovascular diseases, and that's what conceptually that someone can help them prevent it. And we're working, as I said, on the next generation of administration. So the F8 for EGRIFTA that can come with a pen and in the IV push that we are going to be submitting and launching next year and also the IM formulation that we believe can be a game changer for Trogarzo in the future. So this is maybe the latest type of information that we published. I think that there's something very nice developing for EGRIFTA. We recorded 27% growth versus the same quarter 2020. As I said, the science is very compelling. We are broadening the number of users and prescribers. So this is directionally good. Reimbursement of Trogarzo recently in Italy, that's going to be very good because it's going to be an anchor point for the pricing we obtained trying to influence France, Germany for the landing price, but also for Spain and U.K. And as I said, we're working on different formulations for Trogarzo. So last slide here before we move to questions. So we recorded top line sales of $66 million last year. We think that our commercial business can produce growth. Top line revenues, part of that is reinvested in our pipeline development activities. So we're good. We have a good cash position at this time. Our market cap varies, but for the time being, around $325 million and I think we have a good story to tell, we tell the story. And I think that as soon as we're going to have some of those early sign of efficacy in oncology and a path forward for NASH for which we are committed, I think that people will see how powerful our pipeline is, and we're going to see that it's a good investment company to keep in mind. And finally, we have a convertible coming up in the midyear 2023. So I hope I conveyed in a nutshell excitement for this platform that we have in oncology, program that is ready to go to Phase III in NASH but also the commercial organization that can produce growth over the upcoming years. So I'm going to stop here and take your questions.

Great. Thank you, Paul. Thanks. That was a very comprehensive presentation. We did have a few questions come in over the course of the presentation to the extent there's others. Again, my e-mail should be located on your screen. But in the interim, the first question was one of clarification, which is on the minimal docetaxel getting into the bloodstream, was that from a preclinical study finding? Or was that in the Phase Ia that you were commenting on?

It was from preclinical, but we're monitoring the situation now in humans, and it looks like it's -- the direction is the same. We haven't published any data, but it looks like the premise of what we saw in the preclinical work in the animal model is confirmed in humans as well, which probably explains why we could dose at 1.5 and potentially all the way to 2x the level of docetaxel without having the same type of side effects.

Right, right. There was another question in terms of you had a slide in there in terms of the different technology opportunities for SORT1, which of those, whether it be the rational combos, the conjugation, the diagnostic, which of those is most exciting to you in terms of just potential expansion of that technology? And maybe the first that you look to prosecute amongst those? I think there were 5 listed on that slide.

Yes. No, thanks for the question. I think it's an interesting question. I can tell you that whenever we have a strategic session, our mind is just like getting lightheaded so that we have opportunities ahead of ourselves. But let me answer the question. First, we could attach different payload. Using the same principle as TH1902, we could attach SN-38. So very, very potent cytotoxic medicines. And again, very hard to palate for the patients. So if we can actually funnel that through the cell more effectively, we should actually reap the benefits of the SN-38. I'm very excited about combination therapy. Immunotherapy is very important and prominent, but it comes with limitations as well. So if you actually combine the immunotherapy to our peptide drug conjugate, it's a 1-, 2-punch story. And we've got to prove it, but now that we're in the clinic, we're going to start investigating combination therapy. And maybe what is the most important and the most exciting is to say what else can we carry within the cell? So with all the technology developing now with siRNA and obviously, you saw how this mRNA technology was instrumental in getting us vaccine in a short period of time. But you can have a segment of RNA. But the problem is, is that how do we get it -- how do you get it effectively within the cell. And we have a receptor that we know better than anybody else. We have designed a peptide that is the key to that door. So can we use our peptide to conjugate an siRNA. And then you can have a 1-, 2-punch story as well from within the cell. So maybe 1 week, you can actually deliver the TH1902. And the following week, you could deliver an siRNA within the cell that can silent the expression of a protein that is involved in cancer cells growth. So I think this is super exciting. And actually, we are getting inbound questions at this time because people have seen what we have identified. And I think the future is super bright. We just need to prioritize, strategize and execute.

Great. We have one other question coming in about -- on the NASH side, just in terms of how you're thinking about the timing of the initiation of the Phase III trial? You articulated sort of 1 or 2 paths. One is a partnership, which you said really has its positives and then limitations, and the other is a different path, which may have some different financing connotations attached to it. How do you think about time line to choose one of those paths and then obviously, the subsequent time line beyond that?

I mean thanks for the question again. We knew that when we paused we would need some time because identifying a partner is not an easy thing. I've worked in big pharma for all my life. I know the way they make decisions. It's a long and tedious process. And as you know, many companies that were interested in NASH are also kind of pausing at this time, and they want to see if some companies first will break in and make it happen. And I think that the day you have one company showing good results, you're going to have a cascade of interest by a lot of companies. But we have engaged with potential partners. We are in conversations with a few companies. Is that going to pan out or not? I don't know yet. But we have -- we are having conversations, and I said it many, many times, I want to find ways to -- or options to finance the trial, whether or not we find a partner. And we're going to do it in a very responsible way. And the point is that we don't want to actually have an impact on our investors at this time. There are different ways we can finance the trial. We just want to be very diligent in the way that we are approaching it. And people should not forget that we have a commercial organization that is producing revenues. So that can be a lever that we can use to actually finance the trial. And we can finance the trial step-wise because as I said, we have embedded a futility analysis. So that's a point in time that can be a go, no-go. And therefore, it's a way to chop off the cost, that is enormous. The cost of getting to the end zone is $160 million. But if we chop it off in smaller bits, can we do it ourselves? Well, I think we could. But first option first, can we have a partner? Can we have someone that would come with resources and capabilities? And if not, we'll look at other options.

Great. No, I certainly think that's differentiated in terms of the ability to reallocate capital from some of the commercial products within your portfolio. I think we have just hit the 40-minute slot that we reported. So thank you, Paul, very much for the very insightful presentation. Thank you to the audience for some good questions. And thank you all again for joining the conference. And on behalf of Credit Suisse, I'd like to thank Theratechnologies for participating and you specifically, Paul. So thank you very much.

Thank you very much.

Take care.