Zacks Small Cap Research - Theralase Technologies TLT.V : Q1 2015 Financial Update
By Zacks Small Cap Research
7 hours ago
By Brian Marckx, CFA & Anita Dushyanth, PhD
TSX:TLT.V
Insights on meeting with management…
We had an informal lunch meeting with Mr. White, President of Theralase (TLT.V), who was in New York City to attend the Marcum Microcap conference last week. We spoke with management regarding their progress on obtaining regulatory approval from Health Canada for sale of TLC-2000 device as well as completing the Clinical Trial Application (CTA) to commence human trials employing their PDT technology. Management was particularly excited about getting ready with inventory to start selling the TLC-2000 device in Canada upon obtaining Health Canada approval. Shareholders have been waiting almost a year for device launch. The stock has remained stable over the past several months and we remain optimistic that the company will turn cash flow positive once the device is launched and sales picks up in the 3 major markets (Canada, U.S. and Europe). Management also provided a brief update on the status of the Phase Ib studies involving the TLD 1433 compound and PDT technology. In the following paragraphs, we give some of the key strategies and initiatives that management has planned for the second half of 2015. We reiterate our thesis on why we believe investment in Theralase is meaningful in the long term.
Thus far, Theralase achieved key milestones in Q1 2015, including:
o Assembling an expert Medical and Scientific Advisory Board in Q4 2014
o Meeting with Health Canada during a CTA in Q1 2015 to present its PDT technology
o Commencing the manufacturing process of its lead Photo Dynamic Compound (PDC) TLD 1433 to GMP certification standards for completion of a Drug Master File slated for Q3 2015
o Commencing toxicology analysis of TLD 1433 and compiling the clinical trial protocol for Phase Ib studies.
Theralase anticipates completing the requirements for the CTA application to be submitted to Health Canada in Q3 2015 and pending their approval, commencing patient enrollment for the Phase Ib NMIBC clinical trial. We are anticipating the start of the human clinical trial by end of this year.
Theralase’s discovery – PDC compound TLD 1433…
Theralase has already demonstrated from previous preclinical studies that Near Infra Red (NIR) PDT not only clears colon cancer cells, but also generates a long-term anticancer memory response in mice (eight to ten weeks old as well as ten to eleven months old).
Transferrin (iron-binding blood plasma glycoprotein) occurs in the body naturally and controls the level of free-floating iron in body fluids. If a biological cell has a transferrin receptor (TfR) on its surface, transferrin is able to bind more effectively to that specific cell.
It has been shown in studies that transferrin receptors are overexpressed for a variety of cancers and are known to transform normal cells into cancer cells. When TLD 1433 directly binds to transferrin to form Rutherrin, develops the ability to localize into the mitochondria that is present in the cytoplasm of the cancer cell. When activated by NIR light, the cancerous cell is destroyed through apoptosis (natural cell death).
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More recently, on 14 May 2015, Theralase announced that its lead PDC, TLD 1433, emits a fluorescent signature when light activated in a Non-Muscle Invasive Bladder Cancer (NMIBC) animal model. The advantages of using the compound are now three-fold. Firstly, the compound can be employed as a diagnostic tool to detect the presence of cancer cells and micro-metastases. Secondly, it can be used to determine sufficient uptake of TLD 1433 into the cancer cells. Finally, it can be used to determine if the cancer cells that have absorbed the drug have been destroyed after light activation. This technology is very promising as it can help clinicians visualize and distinguish diseased tissue from healthy ones at a cellular and molecular level.
The graph below indicates that TLD 1433 does not enter the blood stream, thus providing a very high safety profile and ultra-low toxicity.
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If Theralase is able to complete the preclinical studies using TLD 1433, the company will be in a position to have a pre-New Drug Application(pre-NDA) meeting sometime during Q4 2015 and, potentially, be on track to file the NDA soon after. Theralase plans on developing a commercial product using a PDT technology for various cancer indications.
2015 First quarter financial results…
On 29 May 2015, Theralase released their financial results for the quarter ending 31 March 2015. Both revenue and EPS were generally in line with our expectations. Revenue increased by 2% year over year to $368,304, compared to $361,178 in Q1 2014. The net loss for the three-month period ended March 31, 2015 was $933,644 and came out 31% more than estimated. OpEx increased as a result of the anticipated launch of the TLC-2000 therapeutic laser technology in Q2 2015 and R&D of the TLC-3000 PDT technology. SG&A expenses were 23% more than estimated due to increased spending on investor relations activities and salaries for the newly appointed personnel on their management team.
Theralase had spent significant time and effort in Q1 2015 in obtaining regulatory approval for bringing the TLC-2000 device to launch in Canada. The company’s experienced sales and marketing personnel are gearing up to sell the TLC-2000 device to existing Canadian customers as well as to the U.S. and European markets, pending approval. This could result in a meaningful increase to revenue beginning in 2H 2015.
As of March 31, 2015, Theralase had $8 million in cash. We estimate SG&A expenses to be about $600,000 in Q2 2015, roughly $2 million for 2H 2015 and increase thereafter as Theralase intensifies its sales and marketing strategies to sell TLC-2000 device. We model R&D expense to remain roughly similar to Q1 2015. With a burn rate of ~ $1-1.5 million per quarter, we believe the cash balance (~$6 million) will be sufficient to fund the operations related to TLC-2000 launch in Canada. Although quarterly revenue has been flat, we are expecting significant revenue growth in 2H 2015 and beyond from the sale of TLC-2000 devices in Canada.. We believe revenue for 2015 may eclipse the $3 million mark if Theralase commences selling TLC-2000 in the U.S. and Europe in Q4 2015. Theralase plans to market the TLC-2000 device by offering customers a $1000 credit when they trade in the TLC-1000 device towards the purchase of the TLC-2000 (newer model), which has the potential to incentivize existing customers into buying the second-generation device and help drive up the top-line. If revenue ramps up as per our expectations, we anticipate seeing an impressive financial turnaround for Theralase and think the company could be at or near break-even in 2016.
We remain positive on Theralase. We maintain our Buy rating and continue to feel the shares trade below fair value.
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