Biotech Stock Mailbag: Theratechnologies

BOSTON (TheStreet) --Theratechnologies (TH.TO) received approval Thursday for a new drug, Egrifta, which reduces abdominal fat in HIV-infected patients. Via Twitter, @cookyourassets opens this week's Biotech Stock Mailbag asking for my thoughts on Theratechnologies now that Egrifta was approved.

Egrifta's U.S. marketing clearance is great news for Theratechnologies, although much of the upside was baked into the stock, illustrated by the positive but relatively muted reaction Thursday.

FDA approved Egrifta for the reduction of abdominal fat in HIV-infected patients, a condition known as lipodystrophy that is a common side effect of antiretroviral drugs used to treat HIV.

Theratechnologies shares on the Toronto Stock Exchange were up about 9% to $5.47 intraday Thursday. You'd expect more from a small stock with a new drug approval but the big, 80%-plus upside move came last May after an FDA advisory panel unanimously backed Egrifta's approval.

Egrifta will be sold in the U.S. by EMD Serono, an affiliate of the German drug firm Merck KGaA, through a partnership under which Theratechnologies receives royalty payments based on Egrifta sales. A $25 million milestone paid to Theratechnologies upon Egrifta's approval will largely cover the company's 2011 expenses.

Egrifta is the first approved therapy for abdominal lipodystrophy but the drug's label is not without risk and limitations. Whether Egrifta decreases the risk of cardiovascular disease or improves compliance with antitretroviral drugs has not been studied.

On the safety side, Egrifta stimulates certain cellular growth factors and increases blood sugar levels, so FDA warns doctors to be cautious about treating patients with a history of cancer and asks that blood sugar levels be monitored. Egrifta must also be injected once a day, which may be a convenience challenge for HIV patients accustomed to daily pills.

Egrifta has some commercial challenges, which likely also explains Thursday's muted stock reaction. BMO Capital analyst Jason Zhang sees upside in Theratechnologies to $8-9 a share, if U.S. sales of Egrifta can reach $200-$250 million in 2013 (with royalty revenue of around $41 million flowing to Theratechnologies.)

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