Liking What We See, Initiating With OW & $9 PT - Summary
Investment Summary: We are initiating coverage of Theratechnologies Inc. (THTX) shares
with an Overweight (OW) rating and a 12-month Price Target (PT) of $9. We arrive at our
PT by using a DCF analysis. We believe the peak sales potential of THTX's products and
pipeline are under-appreciated. Therefore, upwards earnings estimate revisions should
move the stock higher, in our view.
Peak sales potential of THTX's HIV franchise is under-appreciated. THTX's two HIV
(human immunodeficiency virus) drugs, Egrifta and Trogarzo, could grow 20% a year
for the foreseeable future, in our view. To be conservative, we have modeled a midteens
sales growth for these two products. FactSet consensus also forecasts mid-teens
sales growth for THTX's HIV franchise. Product innovations and dedicated sales focus
on these two drugs have driven uptake. THTX's decision to internalize its field force
and strengthen its commercial operations in the U.S. is starting to deliver results, as
evidenced by the 19% YoY sales growth in this territory in 3Q22. Importantly, we view
THTX's HIV franchise as a source of funds to help build the company's first-in-class and/
or best-in-class oncology and NASH pipelines.
First-in-class/best-in-class PDC is not reflected in valuation. On 7/14/22, THTX issued
an update on the dose-escalation portion of its TH1902 Phase 1 clinical safety study.
TH1902 is THTX's first-in-human study of its investigational lead peptide drug conjugate
(PDC) for the treatment of sortilin- (SORT1) expressing cancers. In this update, THTX
announced that a total of 18 heavily pre-treated patients, who received an average
of eight prior cancer treatments, were enrolled in the dose-escalation portion of the
study. Thus far, 300 mg/m appears to be a well-tolerated dose level, which continues
to be evaluated in the larger basket portion of the TH1902 study. Signs of efficacy
have been observed in three heavily pre-treated patients in the dose-escalation trial.
TH1902 has received Fast Track designation from the U.S. FDA.
Partnership for NASH could drive upside to Street expectations. Tesamorelin is a
growth hormone-releasing hormone (GHRH) targeting the underlying mechanisms of
NASH for non-HIV and HIV patients. THTX continues to have discussions with potential
NASH partners for tesamorelin, and renewed interest in NASH after some historical
setbacks in drug development should increase interest for THTX's drug, in our view.
THTX's NASH program is still on pause, pending resolution on the F8 formulation and
finding of a partner with resources and capabilities. THTX has guided to filing this new
formulation in 4Q23, with an approval and launch expected in ~1Q24. If approved,
tesamorelin has the potential to address large unmet needs in a multi-billion dollar
market.
The Disclosure