Theratechnologies Inc T.TH

RE: Target rise from Versant

[Mugen1996]

More info from the Versant Report:

TARGET INCREASE REFLECTS POSITIVE IMPACT FROM

SANOFI-AVENTIS ALLIANCE

We have revised our model to incorporate Latin American/African/Middle

Eastern Egrifta sales into valuation as follows:

• We assume Latin American HIV lipodystrophy market is about half of

North American market, which our model assumes can reach peak

sales of US$687 million by F2017. Medical market size is clearly

influenced by multiple factors and not just disease incidence, but HIV

prevalence is high in Brazil in particular (730,000 infected individuals

according to 2007 data published by USAID) and Mexico (200,000

infected individuals, USAID data), comparable to U.S. prevalence on

per capita basis (1.1 million infected individuals in 2007 according to

U.S. CDC). Management predicts that Latin America constitutes about

80%-to-90% of total Egrifta revenue opportunity ascribed to deal, so

for modeling purposes we will assume revenue solely from Latin

American sales.

• Key rationale for partnering with Sanofi-Aventis in secondary regional

markets is undoubtedly preexisting relationship that Theratechnologies’

senior management already had with the firm, but while Sanofi-Aventis

has modest experience in marketing growth hormone (GH) or

metabolic therapies (excluding its diabetes franchise targeting a distinct

chronic medical market, and excluding orphan markets targeted by

Genzyme), the company does have a solid focus on emerging markets.

In Q3/10 alone, so-called emerging markets contributed 29.6%, or €2.3

billion, of total product sales and €877 million of this was to BRIC

(Brazil-Russia-India-China) nations of which Brazil is clearly relevant to

Egrifta marketing alliance announced today.

• But on the flip side, Sanofi-Aventis does not yet have marketing

bandwidth in HIV drug marketing that other major pharma firms like

Bristol Myers Squibb (Reyataz), Merck (Isentress-Crixivan), Gilead

(Atripta-Truvada), Boehringer Ingelheim (Aptivus-Viramune) or J&J

(Prezista) do, and in Sanofi-Aventis’ Q3/10 presentation, it was clear

that most focus in emerging markets is on vaccines, generic drugs, and

consumer healthcare drugs, not on proprietary infectious diseasespecialty

pharmaceuticals. That said, we believe Sanofi-Aventis can

leverage existing marketing infrastructure into relevant HIV markets.

• Management indicated that North American partner Merck-Serono

expects to market Egrifta at an initial price per annual course of therapy

of US$23,900, a reasonable level on considering prices garnered for

other proprietary protein-based injectible drugs like Avastin or Erbitux,

though a clear premium to annual price for oral anti-retroviral HIV

drugs that usually sell for about US$6,000-to-US$10,000. We have

revised U.S. pricing assumption in our model, though we believe total

market opportunity could be offset by more modest HIV market

penetration, at least initially. We expect Sanofi-Aventis to price Egrifta

at a discount to U.S. price.