Theratechnologies inc.
TSX : TH

Theratechnologies inc.

February 10, 2010 16:07 ET

Milestones Met in 2009 Lead to Optimistic Outlook for Theratechnologies

Theratechnologies announces financial results for the fourth quarter and reviews highlights for the year 2009

MONTREAL, QUEBEC, CANADA--(Marketwire - Feb. 10, 2010) -



- Conclusion of an agreement with EMD Serono
- Filing of a New Drug Application with the FDA
- Receipt of a US $10 M milestone payment
- Invitation to appear before a FDA Advisory Committee
- Granting of a patent for tesamorelin in Brazil
- $65 M liquidity position


Theratechnologies (TSX:TH) today announced its financial results for the fourth quarter ended November 30, 2009, and reviewed the year's highlights.

"Theratechnologies had another great year in 2009," stated Yves Rosconi, President and CEO of Theratechnologies. "The year started off with the conclusion of the agreement with EMD Serono. Our first priority under the terms of the agreement was to submit our New Drug Application to the FDA. I am pleased to say that Theratechnologies was able to overcome this challenge and meet its set objectives," continued Mr. Rosconi. "Our regulatory filing is currently in the process of being evaluated by the FDA and we are on the right track to achieving our principal objective, which is to obtain approval for tesamorelin in the United States. Evidently, there is still work to do, and our accomplishments in 2009 will allow us to view the year 2010 with optimism," concluded Mr. Rosconi.

"We ended the financial year, which was marked by a planned decrease in expenditures and by the receipt of payments associated with the EMD Serono agreement, with over $65 M in cash," noted Mr. Luc Tanguay, Senior Executive Vice President and CFO of Theratechnologies. "With two potential milestone payments associated with the approval of tesamorelin, we are well positioned to maintain a solid balance sheet in 2010," Mr. Tanguay concluded.

Highlights

Agreement signed with EMD Serono

On December 15, 2008, Theratechnologies completed the transaction related to the collaboration and licensing agreement with EMD Serono, Inc. ("EMD Serono"), an affiliate of Merck KGaA, of Darmstadt, Germany. Under the terms of the agreement, Theratechnologies received US $30 M (CAD $37.0 M) which included an initial payment of US $22 M (CAD $27.1 M) from EMD Serono and a subscription totalling US $8 M (CAD $9.9 M) for common shares in the Company by Merck KGaA. Under the agreement, Theratechnologies may receive up to US $215 M including the initial payment as well as payments based on the achievement of certain development, regulatory and sales milestones. Furthermore, Theratechnologies will be entitled to receive increasing royalties on annual net sales of tesamorelin in the United States.

Submission of a New Drug Application to the FDA

On May 29, 2009, Theratechnologies submitted a New Drug Application ("NDA") to the U.S. Food and Drug Administration ("FDA"), for the approval of tesamorelin, an analogue of the human growth hormone releasing factor, in the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy.

Receipt of a US $10 M milestone payment

In accordance with the terms of the Company's collaboration and licensing agreement with EMD Serono, Theratechnologies received a milestone payment of US $10 M (CAN $10.9 M) associated with the FDA's acceptance of the NDA for tesamorelin. The acceptance of the NDA, which occurred August 12, 2009, marked the continuance of the review by the FDA of the application submitted by Theratechnologies.

Invitation to appear before a FDA Advisory Committee

As part of the review of its regulatory filing, Theratechnologies is preparing for a public meeting before the Endocrinologic and Metabolic Drugs Advisory Committee of the FDA. Initially scheduled for February 24, 2010, the meeting was postponed--due to administrative delays at the FDA--until a later date which has not yet been determined. The role of the Advisory Committee is to provide the FDA with advice from independent experts and other interested parties on the use of tesamorelin. Even though advisory committees address questions posed by the regulatory authorities through public meetings, the final decision on the approval of a product remains solely with the FDA.

Issuance of a patent for tesamorelin in Brazil

On December 29, 2009, the Brazil Patent and Trademark Office issued Patent Number PI 9608799-4 entitled "Chimeric fatty body-pro-GRF analog with increased biological potency and pharmaceutical formulation" for tesamorelin. The granting of this patent provides protection in Brazil until December 2019.

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FOURTH QUARTER

Revenues

Consolidated revenues for the three-month period ended November 30, 2009, amounted to $2,246,000 compared to $616,000 for the same period in 2008. For the year ended November 30, 2009, consolidated revenues were $19,720,000 compared to $2,641,000 for the same period in 2008.

Royalties, technologies and other

The increased revenues in 2009 are related to the initial payment received on December 15, 2008, upon the closing of the collaboration and licensing agreement with EMD Serono, Inc. ("EMD Serono") as well as the receipt of a milestone payment of $10,884,000 during the third quarter of 2009.

The payment of US $30,000,000 (CAD $36,951,000) included an initial payment of US $22,000,000 (CAD $27,097,000) and a subscription for common shares by Merck KGaA at a price of US $3.67 (CAD $4.52) per share, resulting in gross proceeds of US $8,000,000 (CAD $9,854,000). The initial payment of $27,097,000 has been deferred and is being amortized over its estimated service period on a straight-line basis. This period may be modified in the future based on additional information that the Company may receive related to the estimated service period. For the year ended November 30, 2009, an amount of $6,560,000 related to this transaction was recognized as revenue. At November 30, 2009, the deferred revenues related to this transaction recorded on the balance sheet amounted to $20,537,000.

The milestone payment of $10,884,000, received during the third quarter under the terms of the collaboration and licensing agreement with EMD Serono, is associated with the acceptance by the U.S. Food and Drug Administration ("FDA") to review the New Drug Application ("NDA") for tesamorelin that was submitted by Theratechnologies on May 29, 2009. Under the terms of the collaboration and licensing agreement with EMD Serono, a milestone payment of US $10,000,000 was associated with the FDA's acceptance to review the NDA for tesamorelin. All milestone payments, including the aforementioned payment, are recorded as they are earned, upon the achievement of predetermined milestones specified in the agreement.

Interest

Interest revenues for the three-month period ended November 30, 2009, amounted to $528,000 compared to $518,000 for the same period in 2008. For the year ended November 30, 2009, interest revenues were $2,252,000 compared to $2,427,000 for the same period in 2008. The decrease in interest revenues during the three-month period is associated with lower interest rates during the year, which translated to a lower return on investment. In the fourth quarter of 2009, this decrease in interest rates was compensated by an increase in the average level of investments.

R&D Activities

Research and Development ("R&D") expenditures, before tax credits, totalled $4,534,000 for the fourth quarter of 2009, compared to $6,313,000 for the same period in 2008, representing a decrease of 28.2%. For the year ended November 30, 2009, R&D expenditures were $22,226,000, compared to $35,326,000 for the same period in 2008, representing a decrease of 37.1%. These lower levels of R&D expenses are due to the conclusion of the Phase 3 clinical program in the first half of 2009. The R&D expenses in 2009 include a non-recurring charge of $1,377,000 associated with research material produced to obtain stability data and to validate the commercial production process as requested by the FDA. The R&D expenses incurred in the fourth quarter of 2009 are mainly related to follow up on the regulatory filing notably managing responses to the FDA's questions, a normal part of the review process, and the preparation for the FDA Advisory Committee meeting as well as the preparation for larger-scale production of tesamorelin.

Other Expenses

For the fourth quarter of 2009, general and administrative expenses amounted to $1,634,000, compared to $1,874,000 for the same period in 2008. For the year ended November 30, 2009, general and administrative expenses amounted to $7,149,000 compared to $6,185,000 for the same period in 2008. The increased expenses in 2009 are principally due to a higher exchange loss as well as costs associated with revising the Company's business plan in the first quarter. The exchange losses are due to the conversion of monetary assets and liabilities denominated in foreign currencies into Canadian dollar equivalents using rates of exchange in effect on the balance sheet date.

Selling and market development costs amounted to $1,067,000 for the fourth quarter of 2009, compared to $1,124,000 for the same period in 2008. For the year ended November 30, 2009, selling and market development expenses amounted to $2,583,000, compared to $3,811,000 for the same period in 2008. The decrease in selling and market development costs is due to the signing of an agreement with EMD Serono for the U.S. commercialization of tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy. Since the signing of this agreement, the sales and market development expenses are principally composed of business development expenses outside the United States and the costs of managing the agreement with EMD Serono.

In the fourth quarter of 2008, Theratechnologies conducted an impairment test on the intellectual property of the ExoPep platform following a review of the development strategy by Management for new products. As a consequence, the Company wrote off the carrying amount of this intellectual property in 2008. The write-off of $4,571,000 is included in "Patents, amortization and impairment of other assets" in the consolidated statement of earnings.

In 2008, the Company incurred an impairment of $578,000 related to stock options held in a publicly-traded company.

Net Results

Taking into account the changes in revenues and expenses described above, the Company recorded a fourth quarter net loss of $4,698,000 ($0.08 loss per share), compared to a net loss of $15,145,000 ($0.26 loss per share) for the same period in 2008. For the year ended November 30, 2009, the net loss was $15,058,000 ($0.25 loss per share), compared to a net loss of $48,611,000 ($0.85 loss per share) for the same period in 2008. The net loss in 2008 included the previously described decline in impairment charges, totalling $5,149,000.

The fourth quarter 2009 net loss includes revenues of $1,711,000 related to the agreement with EMD Serono. Excluding this item, the adjusted net loss (see Annex A) amounted to $6,409,000, a decrease of 57.7% compared to the same period in 2008. For the year ended November 30, 2009, the net loss included revenue of $17,444,000 and a non-recurring charge of $4,269,000 related to the agreement with EMD Serono. Excluding these two items, the adjusted net loss (see Annex A) amounted to $28,233,000, a decrease of 41.9% compared to the same period in 2008.

Quarterly Financial Information

The selected financial information provided below is derived from the Company's unaudited quarterly financial statements for each of the last eight quarters. This information has been restated following the adoption of the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3064, Goodwill and Intangible Assets.



(in thousands of Canadian dollars, except per share amounts)
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2009
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Q4 Q3 Q2 Q1
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Revenues $ 2,246 $ 13,148 $ 2,317 $ 2,009
Net earnings (net loss) $ (4,698) $ 5,824 $ (5,430) $(10,754)
Basic and diluted benefit
(loss) per share $ (0.08) $ 0.10 $ (0.09) $ (0.18)
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2008
--------------------------------------------------------------------------
Q4 Q3 Q2 Q1
--------------------------------------------------------------------------
Revenues $ 616 $ 710 $ 716 $ 599
Net earnings (net loss) $(15,145) $(11,220) $(11,382) $(10,864)
Basic and diluted benefit
(loss) per share $ (0.26) $ (0.19) $ (0.20) $ (0.20)
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As described above, the increased revenues in 2009 are related to the amortization of the initial payment received at the closing of the agreement with EMD Serono, as well as the milestone payment of $10,884,000 recorded in August 2009. The increase in the fourth quarter net loss in 2008 is due to impairment charges for intellectual property.

Financial Position

At November 30, 2009, liquidities, which include cash and bonds, amounted to $63,362,000, and tax credits receivable amounted to $1,666,000 for a total of $65,028,000.

For the three-month period ended November 30, 2009, the burn rate from operating activities, excluding changes in operating assets and liabilities, was $4,333,000, compared to $9,559,000 for the same period in 2008. Excluding the revenue of $1,711,000 related to the agreement with EMD Serono, the adjusted burn rate from operating activities, excluding changes in operating assets and liabilities (see Annex A), was $6,044,000, a decrease of 36.8%, compared to the corresponding period in 2008.

For the year ended November 30, 2009, the burn rate from operating activities, excluding changes in operating assets and liabilities, was $13,547,000, compared to $41,592,000 for the same period in 2008. The decrease in the 2009 burn rate is principally related to the payments received under the agreement with EMD Serono as well as the decline in R&D expenditures and in selling and market development costs. Excluding the revenue of $17,444,000 and the non-recurring charge of $4,269,000 related to the agreement with EMD Serono, the adjusted burn rate from operating activities, excluding changes in operating assets and liabilities (see Annex A), was $26,722,000, a decrease of 35.8%, compared to the corresponding period in 2008.

Subsequent Events

Shareholder rights plan

On February 10, 2010, the Board of Directors of the Company adopted a shareholder rights plan (the "Plan"), effective as of such date. The Plan is designed to provide adequate time for the Board of Directors, and the shareholders, to assess an unsolicited takeover bid for Theratechnologies. In addition, the Plan provides the Board of Directors with sufficient time to explore and develop alternatives for maximizing shareholder value if a takeover bid is made, as well as provide shareholders with an equal opportunity to participate in a takeover bid to receive full and fair value for their common shares (the "Common Shares"). The Plan, if approved by the shareholders at the Company's next Annual and Special Meeting to be held in March 2010, will expire at the close of the Company's annual meeting of shareholders in 2013.

The rights issued under the Plan will initially attach to and trade with the Common Shares and no separate certificates will be issued unless an event triggering these rights occurs. The rights will become exercisable only when a person, including any party related to it, acquires or attempts to acquire 20 percent or more of the outstanding Common Shares without complying with the "Permitted Bid" provisions of the Plan or without approval of the Board of Directors. Should such an acquisition occur or be announced, each right would, upon exercise, entitle a rights holder, other than the acquiring person and related persons, to purchase Common Shares at a 50 percent discount to the market price at the time.

Under the Plan, a Permitted Bid is a bid made to all holders of the Common Shares and which is open for acceptance for not less than 60 days. If at the end of 60 days at least 50 percent of the outstanding Common Shares, other than those owned by the offeror and certain related parties have been tendered, the offeror may take up and pay for the Common Shares but must extend the bid for a further 10 days to allow other shareholders to tender.

Granting of stock options

On December 8, 2009, the Company granted 265,000 options at an exercise price of $3.84 per share and cancelled 19,167 options at a weighted exercise price of $2.38 per share in connection with its stock option plan.

New Accounting Policies

Refer to Note 2 of the Company's unaudited Consolidated Financial Statements for the fourth quarter of 2009.

The impact of adopting Section 3064, Goodwill and Intangible Assets, of the CICA Handbook was to increase the opening deficit and to reduce other assets on December 1, 2007 and 2008 by $941,000 and $599,000 respectively. These amounts correspond to adjustments made to patent costs related to periods prior to these dates. Furthermore, following the adoption of this standard, patents and amortization of other assets presented in the consolidated statements of earnings were reduced by $342,000 for the year ended November 30, 2008.

Outstanding Share Data

On February 9, 2010, the number of shares issued and outstanding was 60,449,225, while outstanding options granted under the stock option plan were 2,891,801.

Contractual Obligations

The Company rents its premises under an operating lease expiring in April 2010. In 2009, the lease was renewed by the Company and the lessor for a period of 11 years ending April 30, 2021. Refer to Note 7 of the Company's unaudited Consolidated Financial Statements for the fourth quarter of 2009.

In addition, during and after the year ended November 30, 2009, the Company entered into long-term supply agreements with third parties in anticipation of the commercialization of tesamorelin. Certain of these agreements stipulate an obligation to purchase minimum quantities of products in certain circumstances.

Economic and Industry Factors

Economic and industry factors were substantially unchanged from those reported in the Company's 2008 Annual Report.

About Theratechnologies

Theratechnologies (TSX:TH) is a Canadian biopharmaceutical company that discovers and develops innovative therapeutic products for commercialization. The Company targets unmet medical needs in financially attractive specialty markets where it can retain all or part of the commercial rights to its products. Its most advanced compound, tesamorelin, is an analogue of the human growth hormone releasing factor. In 2009, Theratechnologies submitted a New Drug Application (NDA) to the United States Food and Drug Administration (FDA), seeking approval of tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy. The Company's growth strategy is centered on the commercialization of tesamorelin in the United States and in other markets for HIV-associated lipodystrophy as well as the development of clinical programs for tesamorelin in other medical conditions.

Additional Information about Theratechnologies

Further information about Theratechnologies is available on the Company's website at www.theratech.com. Additional information, including the Annual Information Form and the Annual Report, is also available on SEDAR at www.sedar.com.

Forward-Looking Information

This press release and the Management's Discussion and Analysis for the fourth quarter incorporated therein contain certain statements that are considered "forward-looking information" within the meaning of applicable securities legislation. This forward-looking information includes, but is not limited to, information regarding the filing of a NDA with the FDA, the commercialization of tesamorelin in HIV-associated lipodystrophy, the receipt of royalties related to the commercialisation of tesamorelin, the development of new markets for tesamorelin, the conclusion of partnership agreements and the liquidity needs to finance the Company's operations. Furthermore, the words "will", "may", "could", "should", "outlook", "believe", "plan", "envisage", "anticipate", "expect" and "estimate", or the negatives of these terms or variations of them and the use of the conditional tense as well as similar expressions denote forward-looking information.

Forward-looking information is based upon a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Company's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, the risk that the Company may not obtain all required approvals from regulatory agencies to market its products, the risk that the Company's products may not be accepted by the market, and the delays that may occur if the Company encounters problems with a third-party supplier of services.

Although the forward-looking information contained herein is based upon what the Company believes are reasonable assumptions, investors are cautioned against placing undue reliance on this information since actual results may vary from the forward-looking information. Certain assumptions made in preparing the forward-looking information and the Company's objectives include the assumption, among others, that the FDA will approve tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy, that the Company's business plan will not be substantially modified and that current relationships with the Company's third-party suppliers of services and products will remain good.

Consequently, all of the forward-looking information is qualified by the foregoing cautionary statements, and there can be no guarantee that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences or effects on the Company, its business, its financial condition or its results of operation. Furthermore, the forward-looking information reflects current expectations regarding future events only as of the date of release of this press release.

Investors are referred to the Company's public filings available at www.sedar.com. In particular, further details and descriptions of these risks and other factors are disclosed in the "Risk and Uncertainties" section of the Company's Annual Information Form, dated February 24, 2009, for the year ended November 30, 2008. The Company does not undertake to update or amend such forward-looking information whether as a result of new information, future events or otherwise, except as may be required by applicable law.

ANNEX A

Non-GAAP measures

The Company uses measures that do not conform to generally accepted accounting principles ("GAAP") to assess its operating performance. Securities regulators require that companies caution readers that earnings and other measures adjusted to a basis other than GAAP do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, these measures should not be considered in isolation. The Company uses non-GAAP measures such as adjusted net loss and the adjusted burn rate from operating activities before changes in operating assets and liabilities, to measure its performance from one period to the next without including changes caused by certain items that could potentially distort the analysis of trends in its operating performance, and because such measures provide meaningful information on the Company's financial condition and operating results.

Definition and reconciliation of non-GAAP measures

In order to measure performance from one period to another, without accounting for changes related to revenues and fees associated with the collaboration and license agreement with EMD Serono, management uses adjusted net loss and adjusted burn rate before changes in operating assets and liabilities. These items are excluded because they affect the comparability of the financial results and could potentially distort the analysis of trends in the Company's operating performance. The exclusion of these items does not necessarily indicate that they are non-recurring.

(Thousands of dollars)



November 30th November 30th
3 months) (12 months)
Adjusted net loss 2009 2008 2009 2008

Net loss, per the financial
statements $ (4,698) $ (15,145) $ (15,058) $ (48,611)

Adjustments:
Revenues associated with a
collaboration and license
agreement (note 7 to the
consolidated financial
statements) (1,711) - (17,444) -
Fees associated with
collaboration and license
agreement - - 4,269 -
---------------------------------------------------------------------------
Adjusted net loss $ (6,409) $ (15,145) $ (28,233) $ (48,611)
---------------------------------------------------------------------------

November 30th November 30th
3 months) (12 months)
Adjusted burn rate
before changes in
operating assets and
liabilities 2009 2008 2009 2008

Burn rate before changes
in operating assets and
liabilities, per the
financial statements $ (4,333) $ (9,559) $ (13,547) $ (41,592)
Adjustments:
Revenues associated with
a collaboration and
license agreement (note
7 to the consolidated
financial statements) (1,711) - (17,444) -
Fees associated with
collaboration and
license agreement - - 4,269 -
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Adjusted burn rate
before changes in
operating assets and
---------------------------------------------------------------------------
liabilities $ (6,044) $ (9,559) $ (26,722) $ (41,592)
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THERATECHNOLOGIES INC.
Consolidated Balance Sheets
(Unaudited)

November 30, 2009 and 2008
(in thousands of dollars)

-----------------------------------------------------------------------
-----------------------------------------------------------------------
2009 2008
-----------------------------------------------------------------------
(Restated -
note 2 (a))

Assets
Current assets:
Cash $ 1,519 $ 133
Bonds 10,036 10,955
Accounts receivable 375 610
Tax credits receivable 1,666 1,784
Inventories 2,225 -
Research supplies 287 301
Prepaid expenses 302 397
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16,410 14,180
Bonds 51,807 35,249
Property and equipment 1,229 1,299
Other assets 41 2,817
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$ 69,487 $ 53,545
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Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 5,901 $ 7,198
Current portion of deferred revenues (note
6) 6,847 -
---------------------------------------------------------------------
12,748 7,198

Deferred revenues (note 6) 13,691 -

Shareholders' equity:
Capital stock (note 3) 279,169 269,219

Contributed surplus 6,484 5,585
Accumulated other comprehensive income 1,282 372
Deficit (243,887) (228,829)
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(242,605) (228,457)

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Total shareholders' equity 43,048 46,347

Commitments (note 7)
Subsequent events (note 8)
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$ 69,487 $ 53,545
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See accompanying notes to unaudited consolidated financial statements.




THERATECHNOLOGIES INC.
Consolidated Statements of Earnings
(Unaudited)

Periods ended November 30, 2009 and 2008
(in thousands of dollars, except per share amounts)

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fourth quarter Year
--------------------------------------------------------------------------
2009 2008 2009 2008
--------------------------------------------------------------------------
(Restated - (Restated -
note 2 (a)) note 2 (a))
Revenues:
Royalties, technologies
and other (note 6) $ 1,718 $ 98 $ 17,468 $ 214
Interest 528 518 2,252 2,427
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2,246 616 19,720 2,641
Operating costs and
expenses:
Research and development 4,534 6,313 22,226 35,326
Tax credits (411) (334) (1,795) (2,111)
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4,123 5,979 20,431 33,215
General and
administrative 1,634 1,874 7,149 6,185
Selling and market
development 1,067 1,124 2,583 3,811
Patents, amortization
and impairment of other
assets 120 4,727 346 5,239
Fees associated with
the strategic review
process - 1,479 - 2,224
Fees associated with
collaboration and
licensing agreement
(note 6) - - 4,269 -
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6,944 15,183 34,778 50,674

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Operating loss before
undernoted item (4,698) (14,567) (15,058) (48,033)
Realized loss on
impairment of
available-for-sale
financial assets (note 4
(b)) - (578) - (578)

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Net loss $ (4,698) $ (15,145) $ (15,058) $ (48,611)
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Basic and diluted loss
per share (note 3 (c)) $ (0.08) $ (0.26) $ (0.25) $ (0.85)
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Weighted average number
of common shares
outstanding 60,403,790 58,165,795 60,314,309 57,415,468
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See accompanying notes to unaudited consolidated financial statements.


THERATECHNOLOGIES INC.
Consolidated Statements of Comprehensive Loss
(Unaudited)

Periods ended November 30, 2009 and 2008
(in thousands of dollars)

--------------------------------------------------------------------------
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Fourth quarter Year
--------------------------------------------------------------------------
2009 2008 2009 2008
--------------------------------------------------------------------------
(Restated - (Restated -
note 2 (a)) note 2 (a))

Net loss $ (4,698) $ (15,145) $ (15,058) $ (48,611)

(Losses) unrealized gains
on available-for-sale
financial assets (288) 71 1,039 133

Reclassification adjustment
for gains and losses on
available-for-sale financial
assets (note 4 (b)) (11) 572 (129) 572

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Comprehensive loss $ (4,997) $ (14,502) $ (14,148) $ (47,906)
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See accompanying notes to unaudited consolidated financial statements.




THERATECHNOLOGIES INC.
Consolidated Statement of Shareholders' Equity
(Unaudited)

Period ended November 30, 2009
(in thousands of dollars)

---------------------------------------------------------------------------
---------------------------------------------------------------------------
Capital stock
------------------------------------------------------------- Contributed
Number Dollars surplus
--------------------------------------------------------------------------

Balance, November 30, 2008 58,215,090 $ 269,219 $ 5,585

Issuance of share capital (notes
3 and 6) 2,214,303 9,950 -

Stock-based compensation - - 899

Net loss - - -

Change in unrealized gains and
losses on available-for-sale
financial assets - - -
--------------------------------------------------------------------------

Balance, November 30, 2009 60,429,393 $ 279,169 $ 6,484
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Accumulated
other
comprehensive
income Deficit Total
--------------------------------------------------------------------------

Balance, November 30, 2008 $ 372 $ (228,829) $ 46,347

Issuance of share capital (notes
3 and 6) - - 9,950

Stock-based compensation - - 899

Net loss - (15,058) (15,058)

Change in unrealized gains and
losses on available-for-sale
financial assets 910 - 910
--------------------------------------------------------------------------

Balance, November 30, 2009 $ 1,282 $ (243,887) $ 43,048
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See accompanying notes to unaudited consolidated financial statements.


Period ended November 30, 2009
(in thousands of dollars)

---------------------------------------------------------------------------
---------------------------------------------------------------------------
Capital stock
------------------------------------------------------------- Contributed
Number Dollars surplus
---------------------------------------------------------------------------

Balance, November 30, 2007 54,531,133 $ 238,842 $ 4,807
Changes in accounting policies - - -
Issuance of share capital 3,564,291 29,899 -
Share issue costs - - -
Exercise of stock options:
Cash proceeds 119,666 397 -
Ascribed value - 81 (81)
Stock-based compensation - - 859
Net loss - - -
Change in unrealized gains and
losses on available-for-sale
financial assets - - -
-------------------------------------------

Balance, November 30, 2008 58,215,090 $ 269,219 $ 5,585
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---------------------------------------------------------------------------

Accumulated
other
comprehensive
income (loss) Deficit Total
---------------------------------------------------------------------------

Balance, November 30, 2007 $ (333) $ (177,339) $ 65,977
Changes in accounting policies - (941) (941)
Issuance of share capital - - 29,899
Share issue costs - (1,938) (1,938)
Exercise of stock options:
Cash proceeds - - 397
Ascribed value - - -
Stock-based compensation - - 859
Net loss - (48,611) (48,611)
Change in unrealized gains and
losses on available-for-sale
financial assets 705 - 705
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Balance, November 30, 2008 $ 372 $ (228,829) $ 46,347
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See accompanying notes to unaudited consolidated financial statements.




THERATECHNOLOGIES INC.
Consolidated Statements of Cash Flows
(Unaudited)

Periods ended November 30, 2009 and 2008
(in thousands of dollars)

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fourth quarter Year
--------------------------------------------------------------------------
2009 2008 2009 2008
--------------------------------------------------------------------------
(Restated - (Restated -
note 2 (a)) note 2 (a))
Cash flows from
operating activities:
Net loss $ (4,698) $(15,145) $(15,058) $(48,611)
Adjustments for:
Amortization of property
and equipment 171 160 612 625
Amortization and
impairment of other
assets - 4,667 - 4,957
Stock-based compensation 194 181 899 859
Realized loss on
impairment of available-
for-sale financial assets - 578 - 578
--------------------------------------------------------------------------
(4,333) (9,559) (13,547) (41,592)
Changes in operating
assets and liabilities:
Interest receivable on
bonds (195) 219 (923) 405
Accounts receivable (155) (20) 260 (134)
Tax credits receivable 1,501 (335) 118 (366)
Inventories (631) - (2,225) -
Research supplies 742 (498) 2,765 582
Prepaid expenses 421 109 95 17
Accounts payable and
accrued liabilities 1,166 (3,765) (1,424) (1,324)
Deferred revenues (1,714) - 20,538 -
--------------------------------------------------------------------------
1,135 (4,290) 19,204 (820)

--------------------------------------------------------------------------
(3,198) (13,849) 5,657 (42,412)
Cash flows from
financing activities:
Share issuance 89 121 9,950 30,296
Share issue costs - (23) (8) (1,930)
--------------------------------------------------------------------------
89 98 9,942 28,366
Cash flows from
investing activities:
Addition to property and
equipment (117) (31) (407) (301)
Acquisition of bonds (9,480) (4,815) (29,111) (17,987)
Disposal of bonds 1,500 9,115 15,305 29,889
--------------------------------------------------------------------------
(8,097) 4,269 (14,213) 11,601

--------------------------------------------------------------------------
Net change in cash (11,206) (9,482) 1,386 (2,445)

Cash, beginning of
period 12,725 9,615 133 2,578
--------------------------------------------------------------------------

Cash, end of period $ 1,519 $ 133 $ 1,519 $ 133
--------------------------------------------------------------------------
--------------------------------------------------------------------------

See note 4 (a) for supplemental cash flow information.

See accompanying notes to unaudited consolidated financial statements.



THERATECHNOLOGIES INC.
Notes to Consolidated Financial Statements
(Unaudited)
Periods ended November 30, 2009 and 2008
(in thousands of dollars, except per share amounts)


1. Basis of presentation:

The financial statements included in this report are unaudited and reflect normal and recurring adjustments which are, in the opinion of the Company, considered necessary for a fair presentation of its results. These financial statements have been prepared in conformity with Canadian generally accepted accounting principles. The same accounting policies as described in the Company's latest Annual Report have been used, except as described in note 2 below. However, these financial statements do not include all disclosures required under generally accepted accounting principles and, accordingly, should be read in connection with the financial statements and the notes thereto included in the Company's latest Annual Report. These interim financial statements have not been reviewed by the auditors.



2. New accounting policies:

(a) Adoption of new accounting standards:

Goodwill and intangible assets

Effective with the commencement of its 2009 fiscal year, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3064, Goodwill and Intangible Assets, which will replace Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. The standard provides guidance on the recognition of intangible assets in accordance with the definition of an asset and the criteria for asset recognition, whether these assets are separately acquired or internally developed. The impact of adopting this standard has been to increase the opening deficit and to reduce other assets at December 1, 2007 and 2008 by $941 and $599, respectively, which is the amount of patent costs related to periods prior to these dates. Furthermore, following the adoption of this standard, patents and amortization of other assets presented on the consolidated statements of earnings were reduced by $342 for the year ended November 30, 2008.

Inventories

Effective with the commencement of its 2009 fiscal year, the Company adopted CICA Section 3031, Inventories, which replaces Section 3030 and harmonizes the Canadian standards related to inventories with International Financial Reporting Standards (''IFRS''). This Section provides changes to the measurement and more extensive guidance on the determination of cost, including allocation of overhead; narrows the permitted cost formulas; requires impairment testing; and expands the disclosure requirements to increase transparency. As the Company had no inventories on November 30, 2008, the adoption of this section had no impact on the Company's consolidated financial statements.

Credit risk and fair value of financial assets and financial liabilities

On January 20, 2009, the Emerging Issues Committee ("EIC") of the Accounting Standards Board (''AcSB'') issued EIC Abstract 173, Credit Risk and Fair Value of Financial Assets and Financial Liabilities, which establishes that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities, including derivative instruments. EIC 173 is applied retrospectively, without restatement of prior years, to all financial assets and liabilities measured at fair value in the interim and annual financial statements for periods ending on or after January 20, 2009. The adoption of EIC 173 did not have an impact on the consolidated financial statements of the Company.

Financial instruments - Disclosures

In June 2009, the AcSB issued amendments to CICA Handbook Section 3862, Financial Instruments - Disclosures, in order to align with International Financial Reporting Standard IFRS 7, Financial Instruments: Disclosures. This Section has been amended to include additional disclosure requirements about fair value measurements of financial instruments and to enhance liquidity risk disclosure. The amendments establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The amendments apply to annual financial statements relating to fiscal years ended after September 30, 2009 and are applicable to the Company as at November 30, 2009. The amended section relates to disclosure only and did not impact the financial results of the Company.

b. Future accounting changes:

Business Combinations, consolidated financial statements and non-controlling interests

The CICA issued three new accounting standards in January 2009: Section 1582, Business Combinations, Section 1601, Consolidated Financial Statements, and Section 1602, Non- controlling Interests. The Company is in the process of evaluating the requirements of the new standards.

Section 1582 establishes standards for the accounting for a business combination. It provides the Canadian equivalent to International Financial Reporting Standard IFRS 3 - Business Combinations. The section applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011 and early application is permitted.

Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements. It is equivalent to the corresponding provisions of International Financial Reporting Standard IAS 27 - Consolidated and Separate Financial Statements, Sections 1601 and 1602, and applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011 and early application is permitted.

International Financial Reporting Standards

In February 2008, Canada's AcSB confirmed that Canadian generally accepted accounting principles, as used by publicly accountable enterprises, will be fully converged into IFRS, as issued by the International Accounting Standards Board (IASB). The changeover date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. As a result, the Company will be required to report under IFRS for its 2012 interim and annual financial statements. The Company will convert to these new standards according to the timetable set within these new rules. The Company will determine at a future date the impact of adopting the standards on its consolidated financial statements.



3. Capital stock:

Under the terms of the agreement with EMD Serono Inc. ("EMD Serono"), the Company issued 2,179,837 common shares for a cash consideration of $9,854 (see note 6).

In 2009, the Company received subscriptions in the amount of $96 for the issue of 34,466 common shares in connection with its share purchase plan.

(a) Stock option plan:

Changes in outstanding options granted under the Company's stock option plan for the years ended November 30, 2009 and 2008 were as follows:



----------------------------------------------------------------
----------------------------------------------------------------
Weighted
average
Number exercise price
----------------------------------------------------------------

Options as at November 30, 2007 2,207,633 $ 6.32
Granted 111,000 7.98
Exercised (119,666) 3.32
Cancelled (37,167) 9.57
----------------------------------------------------------------
Options as at November 30, 2008 2,161,800 6.52
Granted 680,500 1.83
Cancelled and expired (176,500) 8.34
----------------------------------------------------------------

Options as at November 30, 2009 2,665,800 $ 5.20
----------------------------------------------------------------
----------------------------------------------------------------


(b) Stock-based compensation and other stock-based payments:

The estimated fair value of the options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:



-------------------------------------------------
-------------------------------------------------
2009 2008
-------------------------------------------------
Risk-free interest rate 1.83% 3.36%
Volatility 79.5% 70.4%
Average option life in years 6 6
Dividend yield Nil Nil
-------------------------------------------------
-------------------------------------------------


The risk-free interest rate is based on the implied yield on a Canadian Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The volatility is based solely on historical volatility equal to the expected average life of the option. The average life of the options is estimated considering the vesting period, the term of the option and the average length of time similar grants have remained outstanding in the past. Dividend yield was excluded from the calculation, since it is the present policy of the Company to retain all earnings to finance operations and future growth.

The following table summarizes the weighted average fair value of stock options granted during the periods ended November 30, 2009 and 2008:



--------------------------------------
--------------------------------------
Weighted average
Number grant date
of options fair value
--------------------------------------
2009 680,500 $ 1.26
2008 111,000 $ 5.16
--------------------------------------
--------------------------------------


(c) Diluted loss per share:

Diluted loss per share was not presented as the effect of options ongoing would have been anti-dilutive. All options outstanding at the end of the year could potentially dilute the basic earnings per share in the future.



4. Supplemental information:

(a) Statement of cash flows:

The following transactions were conducted by the Company and did not impact cash flows:



--------------------------------------------------------------------
--------------------------------------------------------------------
2009 2008
--------------------------------------------------------------------
(Restated -
note 2 (a))
Additions to property and equipment included in
accounts payable and accrued liabilities $ 183 $ 48

Share issue costs included in accounts
payable and accrued liabilities - 8
--------------------------------------------------------------------
--------------------------------------------------------------------


(b) In 2009, the Company has reclassified in net earnings $129 of realized gains on available- for-sale financial assets previously recorded in accumulated other comprehensive income.

In 2008, the Company has reclassified in net earnings $572 of realized losses on available- for-sale financial assets previously recorded in accumulated other comprehensive income. The realized loss includes an impairment loss of $578 related to a decline in value that is other than temporary for stock options held in a public company.

On November 30, 2008, the accumulated other comprehensive loss was composed of unrealized gains on available-for-sale financial assets of $1,282 (gain of $372 on November 30, 2008).

(c) The Company received tax credits of $1,912 in 2009 ($1,746 in 2008).

(d) The following items were included in the determination of the Company's net loss:



---------------------------------------------------------------
---------------------------------------------------------------
2009 2008
---------------------------------------------------------------
(Restated -
note 2 (a))

Amortization of property and equipment $ 612 $ 625
Amortization and write-off of other assets - 4,957
Stock-based compensation 899 859
---------------------------------------------------------------
---------------------------------------------------------------



5. Financial instruments:

(a) Carrying value and fair value:

The Company has determined that the carrying values of its short-term financial assets and liabilities, including cash, accounts receivable, as well as accounts payable and accrued liabilities, approximate their fair value because of the relatively short period to maturity of the instruments.

Bonds and investments in public companies are stated at estimated fair value, determined by inputs that are directly observable (Level 2 inputs).

(b) Interest income and expenses:

Interest income consists of interest earned on cash and bonds.

(c) Loss on exchange:

General and administrative expenses include a loss on foreign exchange of $635 (loss of $247 in 2008) for the year ended November 30, 2009.



6. Collaboration and licensing agreement:

On October 28, 2008, the Company entered into a collaboration and licensing agreement with EMD Serono, an affiliate of Merck KGaA, regarding the exclusive commercialization rights of tesamorelin in the United States for the treatment of excess abdominal fat in HIV infected patients with lipodystrophy (the "Initial Product"). Theratechnologies retains all tesamorelin commercialization rights outside of the US.

Under the terms of the agreement, the Company is responsible for the development of the Initial Product up to obtaining marketing approval in the United States. The Company is also responsible for product production and for the development of a new formulation of the Initial Product. EMD Serono is responsible for conducting product commercialization activities.

At the closing of the agreement, on December 15, 2008, the Company received US$30,000 (CAD$36,951), which includes an initial payment of US$22,000 (CAD$27,097) and US$8,000 (CAD$9,854) as a subscription for common shares in the Company by Merck KGaA at a price of US$3.67 (CAD$4.52) per share. The Company may receive up to US$215,000, which amount includes the initial payment of US$22,000, the equity investment of US$8,000, as well as payments based on the achievement of certain development, regulatory and sales milestones. The Company will also be entitled to receive escalating royalties on annual net sales of tesamorelin in the US.

The initial payment of $27,097 has been deferred and is being amortized over its estimated service period on a straight-line basis. This period may be modified in the future based on additional information that may be received by the Company. For the year ended November 30, 2009, an amount of $6,560 related to this transaction was recognized as revenue. At November 30, 2009, the deferred revenues related to this transaction amounted to $20,537.

On August 12, 2009, the US Food and Drug Administration accepted the New Drug Application ("NDA") made by the Company for tesamorelin. Under the terms of the Company's collaboration and licensing agreement with EMD Serono, the acceptance of the tesamorelin NDA resulted in a milestone payment of US$10,000 (CAD$10,884). This milestone payment has been recorded in the third quarter of 2009.

The Company may conduct research and development for additional indications. EMD Serono will have the option to commercialize additional indications for tesamorelin in the US. If it exercises this option, EMD Serono will pay half of the development costs related to such additional indications. In such cases, the Company will also have the right, subject to EMD Serono's agreement, to participate in the promotion of the additional indications.



7. Commitments:

a. Rental of premises:

The Company rents premises under an operating lease (the "Lease") expiring in April 2010. The Lease was renewed by the Company and the lessor during the 2009 financial year for a period of 11 years ending April 30, 2021. Under the terms of the Lease, the Company has also been granted two renewal options for periods of five years each. The minimum payments required under the terms of the Lease are as follows:



---------------------------------------
---------------------------------------
2010 $ 340
2011 55
2012 655
2013 655
2014 655
2015 273
Thereafter 3,943
---------------------------------------

$ 6,576
---------------------------------------
---------------------------------------


The Company has committed to pay the lessor for its share of some operating expenses of the leased premises. This amount has been set at $240 for the year beginning May 1, 2010 and will be increased by 2.5% annually for the duration of the Lease.

The lessor will provide the Company an amount of $728 to allow it to undertake leasehold improvements.

The Company has issued an irrevocable letter of credit in favour of the lessor in the amount of $323 which will be cancelled April 30, 2010 under the terms of the Lease renewal, along with a first rank movable mortgage in the amount of $1,150 covering all the Company's tangible assets located in the rented premises. This mortgage, however, can be subordinated to those of lending institutions.

(b) Long-term supply agreements:

During and after the year ended November 30, 2009, the Company entered into long-term supply agreements with third parties in anticipation of the commercialization of tesamorelin. Certain of these agreements stipulate an obligation to purchase minimum quantities of products in certain circumstances.

(c) Credit facility:

The Company has a credit facility available in the amount of $1,800, bearing interest at prime plus 0.5% and secured by bonds. Under the credit facility, the market value of investments held must always be equivalent to 150% of amounts drawn under the facility. If the market value falls below $7,000, the Company will provide the bank with a first rank movable hypothec of $1,850 on securities judged satisfactory by the bank.

As at November 30, 2009 and 2008, with the exception of the letter of credit mentioned in (a) above, the credit facility available to the Company was not utilized.



8. Subsequent events:

(a) On February 10, 2010, the Company's Board of Directors has adopted a shareholder rights plan (the ''Plan''), effective as of such date. The Plan is designed to provide adequate time for the Board of Directors and the shareholders to assess an unsolicited takeover bid for the Company, to provide the Board of Directors with sufficient time to explore and develop alternatives for maximizing shareholder value, if a takeover bid is made, and to provide shareholders with an equal opportunity to participate in a takeover bid and receive full and fair value for their common shares (the "Common Shares").

The Plan, if approved by the shareholders, will expire at the close of the Company's annual meeting of shareholders in 2013.

The rights issued under the Plan will initially attach to and trade with the Common Shares and no separate certificates will be issued unless an event triggering these rights occurs. The rights will become exercisable only when a person, including any party related to it, acquires or attempts to acquire 20 percent or more of the outstanding Common Shares without complying with the "Permitted Bid" provisions of the Plan or without approval of the Board of Directors. Should such an acquisition occur or be announced, each right would, upon exercise, entitle a rights holder, other than the acquiring person and related persons, to purchase Common shares at a 50 percent discount to the market price at the time.

Under the Plan, a Permitted Bid is a bid made to all holders of the Common Shares and which is open for acceptance for not less than 60 days. If, at the end of 60 days at least 50 percent of the outstanding Common Shares, other than those owned by the offeror and certain related parties, have been tendered, the offeror may take up and pay for the Common Shares but must extend the bid for a further 10 days to allow other shareholders to tender.

(b) On December 8, 2009, the Company granted 265,000 options at an exercise price of $3.84 per share and cancelled 19,167 options at a weighted exercise price of $2.38 per share in connection with its stock option plan.



9. Comparative figures:

Certain of the 2008 comparative figures have been reclassified to conform with the financial statement presentation adopted in 2009.

Contact Information

  • Theratechnologies Inc.
    Andrea Gilpin
    Vice President, IR & Communications
    514-336-7800, ext. 205
    communications@theratech.com
    or
    Theratechnologies Inc.
    Luc Tanguay
    Senior Executive Vice President and Chief Financial Officer
    514-336-7800, ext. 204
    ltanguay@theratech.com