On October 15, 2020 Theratechnologies Inc. (Theratechnologies, or Company) (TSX: TH) (NASDAQ: THTX), a biopharmaceutical company focused on the development and commercialization of innovative therapies, reported its financial results for the third quarter of fiscal year 2020 ended August 31, 2020 (Press release, Theratechnologies, OCT 15, 2020, View Source [SID1234568509]).

Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:

Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

                  Schedule Your 30 min Free Demo!

"Theratechnologies recently made a number of key business decisions that we expect will build a stronger foundation for growth. First, we announced our intention to pursue the development of tesamorelin for the treatment of NASH in the general population. This well-thought out decision was based on strong scientific evidence and feedback from some of the world’s most renowned experts in this disease area. Additionally, we restructured our sales infrastructure to better align with the current environment and position our commercial medicines for growth. These strategic initiatives, along with our early development efforts in oncology, represent tremendous opportunities for the Company going forward," said Mr. Paul Lévesque, President and Chief Executive Officer, Theratechnologies.

Development of tesamorelin for the treatment of NASH in general population

Announcement made on September 10, 2020 to move forward with a Phase 3 clinical trial evaluating tesamorelin for the potential treatment of nonalcoholic steatohepatitis (NASH) in the general population
Protocol to be submitted to the U.S. Food and Drug Administration (FDA) and European regulatory agencies in the fourth quarter of 2020
Once submitted, feedback from the regulatory agencies should be received within 30 to 60 days
The Company aims to initiate the clinical trial in early 2021
Trogarzo IV Push

A study evaluating a new method of administration of Trogarzo, an IV push, is currently being conducted by TaiMed
The study is progressing well and the recruitment of patients should be completed in the fourth quarter of 2020
Under the terms of the in-licensing agreement with TaiMed, or TaiMed Agreement, Theratechnologies is entitled to commercialize the new method of administration of Trogarzo if, and when, approved
Transition to EGRIFTA SV

The transition to EGRIFTA SV was completed in August 2020
Subsequently, the transition had a non-recurrent impact on net revenue as vials of the original formulation were returned during the quarter. The Company expects corresponding revenue for the replacement vials to be recorded in the fourth quarter of 2020
Impact of COVID-19

COVID-19 continues to represent a challenge for sales representatives who, for the most part, cannot have face-to-face interactions with healthcare providers
On September 21, 2020, the Company announced a change to its sales infrastructure and a reallocation of resources focused on increasing the number of virtual interactions and educational events with physicians. Theratechnologies expects these measures will support efforts to grow sales of Trogarzo and EGRIFTA SV in the U.S. going forward
The Company continues to make progress toward advancing its research and development pipeline. All third-party service providers working with Theratechnologies on these programs remain active
Research & Development Pipeline

Theratechnologies has established a robust and promising pipeline of investigational medicines in areas of high unmet need.

Tesamorelin for the Treatment of NASH

On September 10, 2020, the Company announced its intention to pursue the development of tesamorelin for the treatment of NASH in the general population
Theratechnologies intends to submit the Phase 3 study protocol to the FDA and European regulatory agencies in the fourth quarter of 2020
Subject to feedback from regulatory agencies, enrollment of patients is planned to begin in the first quarter of 2021
Theratechnologies plans to use a new formulation of tesamorelin, known as "F8 formulation", for the Phase 3 clinical trial in NASH. In addition, a supplemental Biologics License Application is expected to be filed with the FDA in early 2022 in HIV-associated lipodystrophy using the multi-dose pen injector currently being developed for this new formulation
On October 13, 2020, the United States Patent and Trademark Office (USPTO) issued U.S. Patent No. 10,799,562, which is directed to the treatment of NASH and/or Nonalcoholic Fatty Liver Disease (NAFLD) in patients using tesamorelin. This patent, which is scheduled to expire in 2040, stems from a patent application filed in March 2020 by Massachusetts General Hospital (MGH). Theratechnologies has an exclusive license with MGH to this patent
Investigational SORT1+ TechnologyTM for the Treatment of Cancer

The Company is pursuing the development of a unique targeted oncology technology. The SORT1+ Technology consists of proprietary peptide-drug conjugates, or PDCs, that specifically target various cancers where the sortilin receptor (SORT1) is overexpressed
Based on positive preclinical data, Theratechnologies plans to submit an investigational new drug application, or IND, to the FDA for a first-in-human clinical trial evaluating its first investigational PDC, TH1902, before the end of 2020. Following IND approval, the Company expects to initiate a Phase 1 clinical trial in early 2021
Theratechnologies plans to submit an IND for TH1904, the Company’s second investigational PDC, once manufacturing scale-up is completed, which is expected to occur following the initiation of the Phase 1 clinical trial of TH1902
Third-Quarter 2020 Financial Results
Consolidated revenue for the three and nine-month periods ended August 31, 2020 was $14,049,000 and $46,930,000 compared to $16,111,000 and $46,816,000 for the same periods ended August 31, 2019.

Revenue for the third quarter of 2020 were impacted by one-time items, such as tighter inventory controls at the distributor level and higher than anticipated rebates and chargebacks. Also impacting revenues for the quarter were returns of original EGRIFTA vials, as this formulation has been removed from the market, and vials still in circulation were pulled from pharmacies; the Company expects that the corresponding revenue for replacement vials of EGRIFTA SV will be recorded in the fourth quarter of 2020. Finally, prescription growth was impacted by the Covid-19 pandemic.

COVID-19 has changed the pharmaceutical sales and marketing paradigm. Hospitals and clinics have become less accessible to sales representatives due to pandemic-related restrictions which led to fewer face-to-face interactions with healthcare professionals. As a result, we implemented the appropriate actions to address these challenges. Through a different sales structure and the reallocation of resources, as announced on September 21, 2020, we are increasing the number of virtual interactions and educational events with physicians and ensuring that we have an overall larger presence in the healthcare community. We believe these measures will support our efforts to grow sales of Trogarzo and EGRIFTA SV in the U.S.

Cost of Sales
For the three- and nine-month periods ended August 31, 2020, cost of sales was $6,111,000 and $20,252,000 compared to $6,437,000 and $19,087,000 for the same periods ended August 31, 2019, or Fiscal 2019. Cost of goods sold was $4,611,000 and $15,780,000 in the three and nine-month periods of 2020 compared to $5,215,000 and $15,371,000 for the same periods in the previous year. The decrease in cost of goods sold was mainly due to lower sales of EGRIFTA which was offset by a higher proportion of Trogarzo sales. Cost of sales also included the amortization of the other asset of $1,220,000 and $3,661,000 for the three and nine-month periods ended August 31, 2020. In addition, cost of sales includes write-downs of $282,000 and $676,000 to recognize inventories at net realizable value for the three- and nine-month periods ended August 31, 2020, respectively ($nil and $3,000 for the corresponding periods in the prior year), which includes write-downs of $422,000 during the nine-month period ended August 31, 2020 on excess stock of EGRIFTA mainly due to the Company’s decision to switch patients to and only actively commercialize EGRIFTA SV in the U.S.

R&D Expenses
R&D expenses for the three- and nine-month periods ended August 31, 2020 amounted to $4,183,000 and $11,224,000 compared to $2,152,000 and $6,964,000 in the comparable periods of Fiscal 2019.

The increase was largely due to the development of our oncology platform, the F8 formulation and the multi-dose pen injector as well as regulatory expenses and increased medical education initiatives in Europe in preparation for the Trogarzo launch.

Selling Expenses
Selling expenses increased to $7,025,000 and $20,327,000 for the three- and nine-month periods ended August 31, 2020 compared to $6,389,000 and $18,809,000 for the same periods last year.

The increase was mainly associated with increased activities in Europe.

The amortization of the intangible asset value for the EGRIFTA, EGRIFTA SV and Trogarzo commercialization rights was also included in selling expenses. As such, we recorded an expense of $796,000 for the third quarter of Fiscal 2020 compared to $641,000 for the same quarter last year and $2,155,000 for the nine-month period ended August 31, 2020 and $1,770,000 for the same period last year.

General and Administrative Expenses
General and administrative expenses in the three- and nine-month periods ended August 31, 2020 amounted to $2,699,000 and $8,975,000 compared to $1,772,000 and $5,072,000 reported in the comparable periods of Fiscal 2019.

The increase in general and administrative expenses was mainly associated with business growth, increased activity in Europe, increased administrative expenses as a result of our US registration and listing of our common shares on NASDAQ in October 2019 and the transition to a new CEO.

Finance Income
Finance income, consisting of interest income, for the three- and nine-month periods ended August 31, 2020 was $32,000 and $278,000 compared to $253,000 and $880,000 in the comparable periods of Fiscal 2019.

Lower finance income was due in large part to a decrease in the average interest rates and a decreased liquidity position in Fiscal 2020 compared to Fiscal 2019.

Finance Costs
Finance costs for the three- and nine-month periods ended August 31, 2020 were $831,000 and $3,548,000 compared to $1,253,000 and $3,805,000 in the comparable periods of Fiscal 2019. Finance costs in the third quarter of 2020 and for the nine-month period ended August 31, 2020 represent interest of $838,000 and $2,482,000, respectively on the senior convertible notes issued in June 2018, compared to $847,000 and $2,493,000 for the same periods last year. Finance costs for the third quarter ended August 31, 2020 were partially offset by a foreign currency gain of $496,000.

Finance costs also included accretion expense, which was $485,000 for the third quarter of 2020 and $1,508,000 for the nine-month period ended August 31, 2020 compared to $428,000 and $1,233,000 for the same periods last year.

Adjusted EBITDA
For the reasons noted above, Adjusted EBITDA for the three- and nine- month periods ended August 31, 2020 was $(3,149,000) and $(5,676,000) compared to $1,566,000 and $3,540,000 in the comparable periods of Fiscal 2019. See "Non-IFRS Financial Measures" below.

Net Loss
Taking into account the revenue and expense variations described above, we recorded a net loss of $6,768,000 or $(0.09) per share in the third quarter of Fiscal 2020 and a net loss of $17,118,000 or $(0.22) per share for the nine-month period ended August 31, 2020 compared to a net loss of $1,639,000 or $(0.02) per share in the three-month period ended August 31, 2019 and a net loss of $6,041,000 or $(0.08) per share compared to the nine-month period ended August 31, 2019.

Financial Position
For the three- and nine-month periods ended August 31, 2020, cash flow generated/(used) in operating activities was $277,000 and $(7,648,000) compared to $5,945,000 and $(631,000) for the same periods last year.

In the third quarter of Fiscal 2020, changes in operating assets and liabilities had a positive impact on cash flow of $3,521,000. These changes are mainly due to a decrease in trade and other receivables of $3,967,000.

In the nine months of Fiscal 2020, changes in operating assets and liabilities negatively affected cash flow by $1,872,000 compared to $4,150,000 in the comparable period of fiscal 2019.

As at August 31, 2020, cash, bonds and money market funds amounted to $26,847,000. Based on management’s estimate and current level of operations, we believe that our current liquidity position is sufficient to finance our operations in the foreseeable future.

Non-IFRS Financial Measures
Reconciliation of net profit or loss to adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA)

Adjusted EBITDA is a non-IFRS financial measure. A reconciliation of the Adjusted EBITDA to net profit (loss) is presented in the table below. We use adjusted financial measures to assess our operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they should not be considered in isolation. We use Adjusted EBITDA to measure operating performance from one period to the next without the variation caused by certain adjustments that could potentially distort the analysis of trends in our business, and because we believe it provides meaningful information on our financial condition and operating results.

We obtain our Adjusted EBITDA measurement by adding to net profit or loss, finance income and costs, depreciation and amortization, lease inducements and amortization and income taxes. We also exclude the effects of certain non-monetary transactions recorded, such as share-based compensation for the stock option plan and write-downs (or related reversals) of inventories, for our Adjusted EBITDA calculation. We believe it is useful to exclude these items as they are either non-cash expenses, items that cannot be influenced by management in the short term, or items that do not impact core operating performance. Excluding these items does not imply they are necessarily nonrecurring. Share-based compensation costs are a component of employee remuneration and can vary significantly with changes in the market price of the Company’s shares. In addition, other items that do not impact core operating performance of the Company may vary significantly from one period to another. As such, Adjusted EBITDA provides improved continuity with respect to the comparison of our operating results over a period of time. Our method for calculating Adjusted EBITDA may differ from that used by other companies.

1The Company adopted IFRS 16 – Leases, using the modified retrospective approach, effective for Fiscal 2020, beginning on December 1, 2019. Accordingly, comparative figures for Fiscal 2019 have not been restated. As a result, adjusted EBITDA includes adjustments for additional depreciation related to the right-of-use asset of $111,000 for the three-month period ended August 31, 2020 and of $329,000 for the nine-month period of Fiscal 2020, and an accretion expense on lease liabilities, included in finance costs, of $53,000 and $162,000 for the three- and nine-month periods respectively ended August 31, 2020.
Conference Call Details
A conference call and webcast will be held on October 15, 2020 at 8:30 a.m. (ET) to discuss the results. The call will be hosted by Paul Lévesque, President and Chief Executive Officer of Theratechnologies, and other members of the management team.

To access the call, please dial 1-877-223-4471 (North America) or 1-647-788-4922 (International). The conference call will also be webcast live at View Source An audio replay of the conference call will be available by dialing 1-800-585-8367 (North America) or 1-416-621-4642 (International) and by entering the playback code 2181409.