Theratechnologies inc.
TSX : TH

Theratechnologies inc.

March 23, 2010 17:03 ET

Theratechnologies Announces Financial Results and Closes the First Quarter in a Strong Financial Position

MONTRÉAL, CANADA--(Marketwire - March 23, 2010) - Theratechnologies (TSX:TH)

  • $57 M liquidity position and lower R&D expenses
  • New date set for FDA Advisory Committee meeting
  • Results from the second Phase 3 trial published in the medical journal JAIDS
  • Patents granted for tesamorelin in Brazil and Australia

Theratechnologies (TSX:TH) today announced its financial results for the first quarter ended February 28, 2010.

"We finished the first quarter of 2010 with a solid balance sheet including $57 million of liquidity, which positions us well to pursue our business plan," noted Mr. Luc Tanguay, Senior Executive Vice President and CFO of Theratechnologies. "Furthermore, our research and development expense decreased by 35% compared to the first quarter of 2009. This planned expense reduction helped to reduce the first quarter loss compared to the same period in 2009," Mr. Tanguay concluded.

"The first quarter of 2010 was devoted to preparing for our participation in the public hearing of the FDA's Endocrinologic and Metabolic Drugs Advisory Committee," stated Yves Rosconi, President and CEO of Theratechnologies. "Concurrently with these preparations, we continued to seek out partners for tesamorelin in additional markets and these efforts are going well," he added. "We will be presenting an overview of our activities and strategic initiatives to shareholders at the annual and special meeting of shareholders this week at the Centre Mont-Royal," Mr. Rosconi concluded.

Reminder: Theratechnologies will be holding its annual and special meeting of shareholders this Thursday, the 25th of March, in the Salon International of the Centre Mont-Royal, 2200 rue Mansfield, Montréal. 

Highlights

New date for the FDA Advisory Committee meeting

The U.S. Food and Drug Administration ("FDA") has set a new date of May 27, 2010 for the Endocrinologic and Metabolic Drugs Advisory Committee meeting. The purpose of the meeting is to review Theratechnologies' New Drug Application ("NDA") for tesamorelin, which was submitted on May 29, 2009. The Advisory Committee meeting was originally scheduled for February 24, 2010 but was postponed due to administrative delays at the FDA. As a result of this postponement, the FDA has indicated that the action goal date, which is the target date for the FDA to complete its review of the tesamorelin NDA, will be July 27, 2010.

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 to them through public meetings, the final decision on the approval of a product remains solely with the FDA.

Results from the second Phase 3 trial published in the medical journal JAIDS

An article entitled, "Effects of Tesamorelin, a Growth Hormone-Releasing Factor, in HIV-Infected Patients With Abdominal Fat Accumulation: A Randomized Placebo-Controlled Trial With a Safety Extension", has been published in the March 1st issue of The Journal of Acquired Immune Deficiency Syndromes (JAIDS). The article outlines, in detail, the 52-week data of the second Phase 3 trial, in evaluating tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy. Top-line results of the study were first disclosed in December 2008.

Patents granted for tesamorelin in Brazil and Australia

On February 25, 2010, the Australian Patent Office granted Theratechnologies patent number 2003229222 entitled "GRF Analogue Compositions and their Use" covering the pharmaceutical formulation and the method of treating HIV-associated lipodystrophy with tesamorelin. Obtaining this patent provides protection for tesamorelin in Australia until May 2013. On December 29, 2009, the Brazil Patent and Trademark Office issued a patent to Theratechnologies for tesamorelin granting protection in that territory until December 2019.

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FIRST QUARTER

Revenues

Consolidated revenues for the three-month period ended February 28, 2010, amounted to $2,295,000 compared to $2,009,000 for 2009. The increased revenues in 2010 are related to a longer amortization period (3 months in 2010 versus 2.5 months in 2009) for the initial payment of the collaboration and licensing agreement with EMD Serono, Inc. ("EMD Serono").

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. For the three-month period ended February 28, 2010, an amount of $1,711,000 ($1,426,000 for the same period in 2009) related to this transaction was recognized as revenue. At February 28, 2010, the deferred revenues related to this transaction recorded on the balance sheet amounted to $18,826,000.

R&D Activities

Research and development ("R&D") expenditures, before tax credits, totalled $4,109,000 for the first quarter of 2010, compared to $6,315,000 in 2009. The R&D expenses incurred in the first quarter of 2010 are mainly related to the primary objective of the Company, which encompasses the regulatory activities connected with the preparation for the FDA Advisory Committee meeting. This explains the planned reduction in R&D expenses. The research and development expenses incurred in the first quarter of 2009 are essentially related to closing activities for the confirmatory Phase 3 study.

Other Expenses

For the first quarter of 2010, general and administrative expenses amounted to $1,801,000, compared to $2,321,000 for the same period in 2009. These expenses are comparable to those of 2009, with the exception of exchange loss and the costs associated with revising the Company's business plan in 2009. 

Selling and market development costs amounted to $616,000 for the first quarter of 2010, compared to $481,000 for the same period in 2009. The sales and market development expenses are principally composed of business development and market research expenses outside the United States and the costs of managing the agreement with EMD Serono.

In the first quarter of 2010, patents amounted to $204,000 and were principally related to costs associated with patents for the preclinical programs.

In 2009, the Company incurred expenses of $4,269,000 associated with the closing of the agreement with EMD Serono.

Net Results

Taking into account the revenues and expenses described above, the Company recorded a first quarter 2010 net loss of $4,267,000 ($0.07 per share), compared to a net loss of $10,754,000 ($0.18 per share) for the same period in 2009.

The net loss in 2010 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 $5,978,000 in 2010, a decrease of 24.4% compared to the same period in 2009.

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)

  2010 2009 2008
  Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Revenues $ 2,295 $ 2,246 $ 13,148 $ 2,317 $ 2,009 $ 616 $ 710 $ 716
Net (loss) earnings $ (4,267) $ (4,698) $ 5,824 $ (5,430) $ (10,754) $ (15,145) $ (11,220) $ (11,382)
Basic and diluted (loss) earnings  per share $ (0.07) $ (0.08) $ 0.10 $ (0.09) $ (0.18) $ (0.26) $ (0.19) $ (0.20)

As described above, the increased revenues in 2010 and 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 February 28, 2010, liquidities, which include cash and bonds, amounted to $55,289,000, and tax credits receivable amounted to $1,834,000 for a total of $57,123,000.

For the three-month period ended February 28, 2010, the burn rate from operating activities, excluding changes in operating assets and liabilities, was $3,861,000, compared to $10,412,000 in 2009. 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 $5,572,000 for the quarter ended February 28, 2010, compared to $7 569 000 for the first quarter of 2009, a decrease of 26.4%.

New Accounting Policies

In February 2008, the Accounting Standards Board of Canada ("AcSB") announced that accounting standards in Canada, as used by public companies, will converge with International Financial Reporting Standards ("IFRS"). The Company's changeover date from current Canadian generally accepted accounting principles ("GAAP") to IFRS applies to the interim and annual financial statements of the fiscal year beginning December 1, 2011, when the Company will report financial information for both the first quarter and comparative period using IFRS.

IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and disclosures.

The Company's IFRS convergence project includes four steps: diagnostic and planning, detailed analysis, design, and implementation.

Phase One: Diagnostic Phase - This phase involves establishing a project plan for IFRS convergence and the initial identification of differences between Canadian GAAP and IFRS.

The Company is currently assessing the conversion of its consolidated financial statements to IFRS and expects to complete this phase in the next quarter. It is not presently possible to determine the impact of converting to IFRS on the consolidated financial statements or on the Company's business because the diagnostic phase has not been completed. Once it is completed, the Company will be in a position to confirm the schedule for the following phases.

Phase Two: Detailed Analysis – This phase involves a comprehensive assessment of the differences between IFRS and the Company's current accounting policies in order to evaluate the impact on the Company. In addition, the detailed analysis will identify training requirements, and determine eventual changes to business processes and information systems.

Phase Three: Design - This phase consists of an analysis of the available accounting options under IFRS, notably the exceptions, exemptions and actual choices available for the transition and the preparation of draft IFRS financial statements and the accompanying notes. In addition, it is during this phase that changes to the business processes and the information systems are designed.

Phase Four: Implementation – This phase involves implementing changes to systems, business processes and internal controls, determining the opening IFRS transition balance sheet and the impact on taxation, parallel accounting under Canadian GAAP and IFRS and preparing detailed reconciliations between Canadian GAAP and IFRS financial statements.

Outstanding Share Data 

On March 22, 2010, the number of shares issued and outstanding was 60,450,890, while outstanding options granted under the stock option plan were 2,883,636.

Contractual Obligations

There were no material changes in contractual obligations during the quarter, other than in the ordinary course of business.

Economic and Industry Factors

Economic and industry factors were substantially unchanged from those reported in the Company's 2009 Annual Report.

About Theratechnologies

Theratechnologies (TSX:TH) is a Canadian biopharmaceutical company that discovers and develops innovative therapeutic products, with an emphasis on peptides, 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 to the U.S. Food and Drug Administration, 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 first 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 pursuit of the Company's business plan with the funds that it has available, the search for partners in new markets and the completion of a transition plan for IFRS. Furthermore, the words "will", "may", "could", "should", "outlook", "believe", "plan", "envisage", "anticipate", "expect" and "estimate", or variations of them 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's funding needs may change, that the Company is unable to conclude agreements with partners in new markets for tesamorelin and that the timeline for preparing a transition plan for IFRS is not met.

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 operating activities of the Company will conform to its business plan, the Company will reach agreements with partners in new markets for tesamorelin and the Company will not experience any difficulties in preparing a transition plan for IFRS.

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 on these risks and descriptions of these risks are disclosed in the "Risk and Uncertainties" section of the Company's Annual Information Form, dated February 23, 2010, for the year ended November 30, 2009.

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 from operating activities 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)    
    First Quarter 
Adjusted net loss 2010 2009
Net loss, per the financial statements $    (4,267) $  (10,754)
Adjustments:    
Revenues associated with a collaboration and license agreement (note 6 to the consolidated financial statements) $    (1,711) $    (1,426)
Fees associated with collaboration and license agreement - $      4,269
Adjusted net loss $    (5,978) $    (7,911)

 

    First Quarter 
Adjusted burn rate before changes in operating assets and liabilities 2010 2009
Burn rate before changes in operating assets and liabilities, per the financial statements $    (3,861) $   (10,412)
Adjustments:    
Revenues associated with a collaboration and license agreement (note 6 to the consolidated financial statements) $     (1,711) $     (1,426)
Fees associated with collaboration and license agreement - $       4,269
Adjusted burn rate before changes in operating assets and liabilities $     (5,572) $    (7,569)
 
 
 
THERATECHNOLOGIES INC.
Consolidated Financial Statements
(Unaudited)
Three-month periods ended February 28, 2010 and 2009
 
 
 
THERATECHNOLOGIES INC.            
Consolidated Balance Sheets            
(Unaudited)            
             
February 28, 2010 and November 30, 2009            
(in thousands of dollars)            
   
    February 28,   November 30,  
      2010     2009  
Assets            
             
Current assets:            
  Cash $ 3,332   $ 1,519  
  Bonds   6,264     10,036  
  Accounts receivable   281     375  
  Tax credits receivable   1,834     1,666  
  Inventories   2,251     2,225  
  Research supplies   270     287  
  Prepaid expenses   714     302  
      14,946     16,410  
Bonds   45,693     51,807  
Property and equipment   1,209     1,229  
Other assets   41     41  
   
    $ 61,889   $ 69,487  
             
Liabilities and Shareholders' Equity            
Current liabilities:            
  Accounts payable and accrued liabilities $ 4,073   $ 5,901  
  Current portion of deferred revenues (note 6)   6,855     6,847  
      10,928     12,748  
Deferred revenues (note 6)   11,980     13,691  
             
Shareholders' equity:            
  Capital stock (note 3)   279,230     279,169  
  Contributed surplus   6,720     6,484  
               
  Accumulated other comprehensive income   1,185     1,282  
  Deficit   (248,154 )   (243,887 )
      (246,969 )   (242,605 )
   
Total shareholders' equity   38,981     43,048  
   
    $ 61,889   $ 69,487  
See accompanying notes to unaudited consolidated financial statements.

 

             
             
             
THERATECHNOLOGIES INC.            
Consolidated Statement of Operations            
(Unaudited)            
             
Three-month periods ended February 28, 2010 and 2009            
(in thousands of dollars, except per share amounts)            
   
      2010     2009  
   
Revenues:            
  Royalties, technologies and other (note 6) $ 1,717   $ 1,432  
  Interest   578     577  
      2,295     2,009  
Operating costs and expenses:            
  Research and development   4,109     6,315  
  Tax credits   (168 )   (668 )
      3,941     5,647  
  General and administrative   1,801     2,321  
  Selling and market development   616     481  
  Patents   204     45  
  Fees associated with collaboration and licensing agreement (note 6)     4,269  
      6,562     12,763  
   
Net loss $ (4,267 ) $ (10,754 )
   
Basic and diluted loss per share (note 3 (d)) $ (0.07 ) $ (0.18 )
   
Weighted average number of common shares outstanding 60,438,098   60,055,841  
   
Consolidated Statements of Comprehensive Loss            
(Unaudited)            
Three-month periods ended February 28, 2010 and 2009            
(in thousands of dollars)            
   
      2010     2009  
   
Net loss $ (4,267 ) $ (10,754 )
Unrealized gains on available-for-sale financial assets   3     317  
Reclassification adjustment for gains and losses on            
available-for-sale financial assets   (100 )   (23 )
   
Comprehensive loss $ (4,364 ) $ (10,460 )
   
See accompanying notes to unaudited consolidated financial statements.          
   
   
                         
THERATECHNOLOGIES INC.                      
Consolidated Statements of Shareholders' Equity                        
(Unaudited)                              
                               
Three-month period ended February 28, 2010                        
(in thousands of dollars)                              
   
              Accumulated              
                other              
                compre-              
  Capital stock Contributed     hensive              
  Number   Dollars   surplus     income     Deficit     Total  
   
Balance, November 30, 2009 60,429,393 $ 279,169 $ 6,484   $ 1,282   $ (243,887 ) $ 43,048  
                               
Exercise of stock options:                              
    Cash proceeds 21,164   38               38  
    Ascribed value   23   (23 )            
Stock-based compensation     259             259  
                               
Net loss             (4,267 )   (4,267 )
                               
Change in unrealized gains and                              
  losses on available-for-sale                              
  financial assets         (97 )       (97 )
   
Balance, February 28, 2010 60,450,557 $ 279,230 $ 6,720   $ 1,185   $ (248,154 ) $ 38,981  
   
See accompanying notes to unaudited consolidated financial statements.              
   
   
   
                     
THERATECHNOLOGIES INC.                  
Consolidated Statements of Shareholders' Equity, Continued                
(Unaudited)                          
                           
Three-month periods ended February 28, 2009                    
(in thousands of dollars)                          
   
            Accumulated            
              other            
              compre-            
  Capital stock Contributed   hensive            
  Number   Dollars   surplus   income   Deficit     Total  
   
Balance, November 30, 2008 58,215,090 $ 269,219 $ 5,585 $ 372 $ (228,230 ) $ 46,946  
                           
Change in accounting                          
  policies (note 2 (a))         (599 )   (599 )
                             
Issuance of share capital (note 6) 2,179,837   9,854           9,854  
                           
Stock-based compensation     205         205  
                           
Net loss         (10,754 )   (10,754 )
                           
Change in unrealized gains and                          
  losses on available-for-sale                          
  financial assets       294       294  
   
Balance, February 28, 2009 60,394,927 $ 279,073 $ 5,790 $ 666 $ (239,583 ) $ 45,946  
   
See accompanying notes to unaudited consolidated financial statements.            
   
   
   
             
THERATECHNOLOGIES INC.            
Consolidated Statements of Cash Flows            
(Unaudited)            
             
Three-month periods ended February 28, 2010 and 2009            
(in thousands of dollars)            
   
      2010     2009  
   
Cash flows from operating activities:            
  Net loss $ (4,267 ) $ (10,754 )
  Adjustments for:            
  Amortization of property and equipment   147     137  
  Stock-based compensation   259     205  
      (3,861 )   (10,412 )
  Changes in operating assets and liabilities:            
    Interest receivable on bonds   163     (969 )
    Accounts receivable   94     76  
    Tax credits receivable   (168 )   (668 )
    Inventories   (26 )   (1,594 )
    Research supplies   17     133  
  Prepaid expenses   (412 )   (59 )
  Accounts payable and accrued liabilities   (1,780 )   (128 )
  Deferred revenues   (1,703 )   25,681  
      (3,815 )   22,472  
   
      (7,676 )   12,060  
Cash flows from financing activities:            
  Share issuance   38     9,854  
  Share issue costs       (8 )
      38     9,846  
Cash flows from investing activities:            
  Additions to property and equipment   (175 )   (102 )
  Acquisition of bonds       (19,631 )
  Disposal of bonds   9,626     4,585  
      9,451     (15,148 )
   
Net change in cash   1,813     6,758  
Cash, beginning of period   1,519     133  
   
Cash, end of period $ 3,332   $ 6,891  
   
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)

Three-month periods ended February 28, 2010 and 2009 (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 ("GAAP"). The same accounting policies as described in the Company's latest annual report have been used. However, these financial statements do not include all disclosures required under GAAP 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:

    1. 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, 2008 by $599, respectively, which is the amount of patent costs related to periods prior to these dates.

    2. Future accounting changes:

      International Financial Reporting Standards

      In February 2008, Canada's Accounting Standards Board ("AcSB") confirmed that Canadian GAAP, as used by publicly accountable enterprises, would be fully converged into International Financial Reporting Standards ("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:

    1. 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 the Company. 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 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% 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% 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% 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.

    2. Stock option plan:
      Changes in outstanding options granted under the Company's stock option plan for the year ended November 30, 2009 and the three-month period ended February 28, 2010 were as follows:

        Weighted
        average
      exercise price
  Number     per share
 
Options as at November 30, 2008 (audited) 2,161,800   $ 6.52
         
Granted 680,500     1.83
Cancelled and expired (176,500 )   8.34
 
Options as at November 30, 2009 (audited) 2,665,800     5.20
         
Granted 265,000     3.84
Cancelled and expired (25,667 )   3.26
Exercised (21,164 )   1.80
 
Options as at February 28, 2010 2,883,969   $ 5.12

c.  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:

  2010 2009
 
Risk-free interest rate 2.46% 1.79%
Volatility 81% 79%
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 term of the option. The average life of the options is estimated considering the vesting period, the term of the option and the length of time of similar grants have remained outstanding in the past. Dividend yield was excluded from the calculation, since it is the present policy of the Company not to retain in cash in order to keep funds available to finance the Company's growth.

The following table summarizes the weighted average fair value of stock options granted during the periods ended February 28, 2010 and 2009:

    Weighted average
  Number of grant-date
  options fair value
 
2010 265,000 $ 2.96
2009 590,500   1.24

d. Diluted loss per share:

Diluted loss per share was not presented as the effect of options 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. The following transactions were conducted by the Company and did not impact cash flows:

  February 28, November 30,
    2010   2009
 
Additions to property and equipment included in        
  accounts payable and accrued liabilities $ 135 $ 183

b. For the three-month period ended February 28, 2010, the Company has reclassified in net loss $100 of realized gains on available-for-sale financial assets previously recorded in accumulated other comprehensive income ($23 in 2009).

On February 28, 2010, the accumulated other comprehensive loss was composed of unrealized gains on available-for-sale financial assets of $1,185 (gain of $1,282 on November 30, 2009).

c. For the three-month periods ended February 28, 2010 and 2009, the following items were included in the determination of the Company's net loss:

    2010   2009
 
Amortization of property and equipment $ 147 $ 137
Stock-based compensation   259   205

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 these 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 $44 ($416 in 2009) for the three-month period ended February 28, 2010.

6. Collaboration and licensing agreement:

On October 28, 2008, the Company entered into a collaboration and licensing agreement with EMD Serono, Inc. ("EMD Serono"), and affiliate of Merck KGaA, of Darmstadt, Germany, 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"). The Company retains all tesamorelin commercialization rights outside of the United States.

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 increasing royalties on annual net sales of tesamorelin in the United States, if applicable.

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 three-month period ended February 28, 2010, an amount of $1,711 related to this transaction was recognized as revenue. At February 28, 2010, the deferred revenues related to this transaction amounted to $18,826.

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. Under the Collaboration and Licensing Agreement, EMD Serono will have the option to commercialize additional indications for tesamorelin in the United States. 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.

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