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Theralase 2014 Annual Results: Maintaining Buy Recommendation

May 7, 2015

Summary

  • Theralase hopes to displace its current device TLC-1000 with its next generation TLC-2000 biofeedback laser therapeutic device that will be launched mid 2015 in Canada.
  • The trials employing Photo Dynamic Therapy (PDT) technology for the treatment of bladder cancer in animal models have been successful thus far.
  • Theralase is preparing to commence Phase 1/2 trials to treat bladder cancer in humans using this technology in 4Q 2015.
  • We maintain our Buy rating.

2014 Annual Financial Report:

2014 annual revenue increased by 15% ($1.4 million) for the twelve-month period ended December 31, 2014, as compared to the same period in 2013. The revenues for 2014 came out 17% higher than forecasted. Revenue currently reflects mostly only sales of Theralase’s (OTCPK:TLTFF) TLC-1000 device as the company prepares to launch their next generation instrument, TLC-2000. The operating loss for the entire year 2014 was right-on our anticipated $2.5M. OpEx was up 43% from $1.4M in 2013 with SG&A expenses for the entire fiscal year 2014 coming in 17.5% higher than our estimate. More specifically, marketing and selling expenses turned out to be 53% greater than forecasted. We anticipate the ongoing investment in sales personnel, marketing events and advertising to continue to be on the rise this year as Theralase launches the TLC-2000 device in Canada, the U.S. and international markets. We believe such an effort will help to augment sales in future quarters.

Towards the end of 2014, Theralase assembled a stellar scientific and advisory board with seasoned executives to guide its operations. Dr. Ashish M. Kamat, an internationally recognized expert in urologic oncology, Dr. Michael O’Donnell, whose research is focused on bladder immunology and bladder cancer immunotherapy, and Dr. Brian C Wilson, a senior scientist and Head of the Applied Biophotonics group at Princess Margaret Cancer Centre, University Health Network. The advisory board will lend their expertise to guide Theralase in their developmental efforts related to the PDT technology.

Theralase’s development pipeline consists of fine-tuning the clinical trial design involving the PDT technology, as suggested by Health Canada (HC) during the pre-Clinical Trial Application (pre-CTA) meeting held on April 2, 2015. If things move along as planned, the Phase Ib clinical trial is expected to receive Health Canada CTA approval in 3Q 2015. Theralase anticipates commencing patient enrollment for human clinical studies in NMIBC in 4Q 2015. The company anticipates enrolling nine subjects for their clinical trials.

Meanwhile, the company has filed for Health Canada approval for the TLC-2000 biofeedback therapeutic laser system via a Class 3 Medical Device License application. The TLC-2000 device possesses patented Cell SensingTM technology that allows the instrument to deliver exact doses of light energy to precise depths of target tissue. The approval is expected around mid-May 2015. The FDA and CE Mark filings of the TLC-2000 system were submitted in Q1 2015. Pending approval, management expects to launch the system in Canada towards the end of Q2 2015 and in the U.S. and Europe by Q4 2015. Regulatory approval delays have caused a slight postponement in the initial roll out of TLC-2000. Thus far, revenue has been somewhat softer than anticipated in the past year and been primarily driven by sales of the TLC-1000 device. We believe this trend will continue up until TLC-2000 rolls out. As we had mentioned in our prior update, we anticipate an improvement in top line revenues from 2H 2015 onwards.

Theralase obtained approximately $6.3M USD equivalent (25M shares at $0.32/share) from a round of equity financing which closed in early March and gave an immediate boost to its balance sheet. The capital raised will be used to commence their two most important projects slated for 2015, the TLC-2000 and the TLC-3000.

Outlook:

Our updated financial model reflects the slight delay in TLC-2000’s commercial launch in Canada and in other parts of the globe. Our model is based on the assumption that regulatory approvals are obtained and commercial roll out of the TLC-2000 device commences before end of this year. Although it is a little early to speculate on how many existing customers might choose to trade-in the TLC-1000 for the TLC-2000 device in the initial roll out period, we expect a little more than 15% of the customers in Canada who are ready for the new device. This could yield revenues of about $3M this year. We think it is reasonable that in the latter years, sales of the device to new customers could eventually end up in tripling of sales revenues.

We think R&D expenses may remain elevated with ongoing development of the PDT technology and including clinical trials. We anticipate an improvement in operating loss as revenue ramps with the introduction of the TLC-2000. Theralase is expected to burn cash of about $3M due to ramping up of the inventory and increase in sales and marketing expenses as they prepare to launch TLC-2000 in the U.S. and Europe in the second half of this year. However, with the newly raised funds, we think the company has enough cash to support their operations for the coming years. We expect sales to improve through the second half of 2015 and significant revenue ramp up in 2016, at which point, we think the company turns cash flow positive.

We continue to think Theralase’s shares trade cheaper than warranted. We are maintaining our Buy rating on Theralase and $1.00/share price target.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Discussion
4 Comments
    May 07, 2015 07:58 PM

    Who is WE? maintaining a buy? Wow, management should be tossed, who agreed to finance @ .32 cheezz should have raised money late Dec! The street obviously was not happy with the dilution as the value has never recovered to fill the gap created off the financing, ooouch!

      May 07, 2015 07:40 PM

      Cory, I and Doc all own stock and we are not planning to sell our shares.

      This company all boils down to results from the tests.

      I do agree with the way that the financing was structured, jj, but at least the Company now has a treasury to keep it going.

      Believe me if we change our minds, the folks on this forum will be the first to know.

        May 07, 2015 07:12 PM

        Good luck to you Al, I hope TLT is a home run for you all, financing is no different than selling into strength, raise money into strength! Management 101

          May 07, 2015 07:25 PM

          Cory, Al, and Doc, own stock, I hope it works out for you Boys! DT