Theratechnologies inc.
TSX : TH

Theratechnologies inc.

March 25, 2008 16:30 ET

Theratechnologies Announces Financial Results and Highlights of the First Quarter 2008

- Strategic review initiated by the Board of Directors - Completed $30 million in financing - Additional data presented at CROI - Advancement of awareness program in HIV-associated lipodystrophy

MONTREAL, CANADA--(Marketwire - March 25, 2008) - Theratechnologies (TSX:TH) today announced its financial results for the first quarter ended February 29, 2008 and reviewed recent corporate highlights.

"Regardless of the outcome of the strategic review initiated by the Board of Directors during the first quarter 2008, the Theratechnologies' team stays highly motivated to accomplish the work to make the tesamorelin program successful," commented Mr. Yves Rosconi, President and CEO. "This includes the careful execution of the plan to submit a New Drug Application to the US Food and Drug Administration by year end, as well as educating the market about HIV-associated lipodystrophy", added Mr. Rosconi.

"With a financial position of over $80 million dollars, we are in a solid position not only to negotiate with potential partners, but also to make sure that we have the flexibility required to face the anticipated increase of our burn rate," noted Mr. Luc Tanguay, Senior Executive Vice President and CFO.

Theratechnologies' annual meeting of shareholders will be held on Wednesday, March 26, at 10:00 a.m., in Marquette room, of Fairmount Queen Elizabeth Hotel, 900 Rene-Levesque West Blvd, Montreal.

Recent Highlights

Strategic review initiated by the Board of Directors

On January 29, 2008, Theratechnologies announced that its Board of Directors has initiated a process to explore strategic options available to the Company to further enhance its value. Partnership transactions or licensing tesamorelin, as well as the sale or merger of the Company are, among others, part of the options currently under evaluation.

The Board would like to explore broadly whether any strategic interest on the part of buyers, merger candidates or potential partners might result in superior value, compared to its actual business plan. The strategic review, lead by the Board of directors in collaboration with Lazard and BMO Capital Markets, is on going and Theratechnologies will disclose updates on the process at an appropriate time. However, no date has been set for its completion.

Completed $30 million in financing

The first quarter was marked by the completion of a public offering of 3,500,000 common shares at a price of $8.50 per share for gross proceeds of $29,750,000. The net proceeds of the offering, made through a syndicate of underwriters led by BMO Capital Markets, will be used by Theratechnologies primarily to finance the continuing development of tesamorelin, to finance part of its commercialization efforts, and for working capital purposes.

Additional data presented and CROI

On February 4, Theratechnologies presented new data from its first 52-week Phase 3 study evaluating tesamorelin in HIV-associated lipodystrophy were presented as a poster at the 15th Conference on Retroviruses and Opportunistic Infections (CROI) in Boston, Massachusetts. This study which was designed to evaluate the safety profile at 52 weeks, has demonstrated that tesamorelin was well tolerated overall. In addition, this study showed that after 52 weeks of treatment with tesamorelin, there was a clinically significant decrease in triglyceride levels as well as the maintenance of cholesterol levels within normal range. No clinical effect on glucose parameters was observed. Furthermore, no difference in visceral adipose tissue reduction was seen between women and man, compared to baseline levels.

Advancement of awareness program in HIV-associated lipodystrophy

The implementation of the HIV-associated lipodystrophy awareness plan and our preparations regarding reimbursement strategies is moving forward. The Theratechnologies' marketing team is working in collaboration with consultants in advertising, public relations and medical education. These consultants, recognised for their experience in new pharmaceutical product launches, support the market education efforts of the team in place internally.

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FIRST QUARTER

Revenues

Consolidated revenues for the three-month period ended February 29, 2008 amounted to $599,000 compared to $287,000 in 2007. Revenues for the quarter are mainly composed of interest from investments. In 2008, interest revenues were higher in the first quarter compared to 2007 due to a high liquidity position.

R&D Activities

Consolidated research and development (R&D) expenditures, before tax credits, totaled $9,484,000 for the first quarter of 2008, compared to $8,100,000 in 2007. The increase in R&D spending in 2008 is primarily related to an increase in costs related to various projects to complete the tesamorelin program in HIV associated lipodystrophy. Additionally, in 2008, there was an increase in the number of employees and consultants in preparation for the submission of the New Drug Application (NDA) at the US Food and Drug Administration.

For the first quarter 2008, the stock-based compensation expenses attributable to R&D amounted to $138,000 compared to $884,000 in 2007. The exceptionally high stock-based compensation expenses in 2007 are due to a special distribution of stock options to all employees

Other Expenses

For the first quarter of 2008, general and administrative expenses, patents and amortization of other assets (SG&A) were $2,037,000, compared to $1,993,000 for the same period in 2007. Sales and market development cost increased to $457,000 in the first quarter of 2008 compared to $395,000 for the same period in 2007. The increase in expenses in 2008 is principally due to the Company's growth and development, as well as a loss in foreign exchange related to the fluctuations of the Canadian dollar and the costs associated with the strategic review which is being led by the Board of Directors and announced on January 29, 2008.

For the first quarter 2008, the stock-based compensation expenses attributable to SG&A amounted to $58,000 compared to $596,000 in 2007. The exceptionally high stock-based compensation expenses in 2007 are due to a special distribution of stock options to all employees.

Net Results

Reflecting the changes in revenues and expenses described above, the Company recorded a first-quarter net loss of $10,891,000 (0.20 per share), compared to $9,439,000 (0.20 per share) for the same period in 2007.

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.



------------------------------------------------------------------------
------------------------------------------------------------------------
2008 2007
------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1
------------------------------------------------------------------------
Revenues $599 $1,294 $748 $805 $287
Net loss $(10,891) $(10,279) $(9,781) $(8,089) $(9,439)
Basic and diluted
loss per share $(0.20) $(0.19) $(0.18) $(0.15) $(0.20)
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------------------------------------------------------------------------

------------------------------------------------------------------------
------------------------------------------------------------------------
2006
------------------------------------------------------------------------
Q4 Q3 Q2
------------------------------------------------------------------------
Revenues $367 $412 $395
Net loss $(6,942) $(7,251) $(6,221)
Basic and diluted
loss per share $(0.15) $(0.16) $(0.14)
------------------------------------------------------------------------
------------------------------------------------------------------------


Financial Position

Theratechnologies maintains a solid financial position. At February 29, 2008, liquidities, which include cash and bonds, amounted to $79,132,000 and tax credits receivable amounted to $1,906,000 for a total of $81,038,000.

During the quarter, the Company completed a public offering for the sale and issuance of 3,500,000 common shares for a cash consideration of $29,750,000. Issue costs totaled $1,938,000 resulting in net proceeds of $27,812,000.

For the three-month period ended February 29, 2008, the burn rate from operating activities, excluding changes in operating assets and liabilities, was $10,397,000, compared to $7,562,000 in 2007. The increased burn rate in 2008 is the result of the planned increase in the Phase 3 program activities and which include the efforts associated with precommercialization of tesamorelin.

New Accounting Policies

Refer to note 2 of the Company's unaudited Consolidated Financial Statements for the first quarter 2008.

The adoption of the new accounting policies described above has no impact on the financial results of the Company.

Outstanding Share Data

On March 24, 2008, the number of shares issued and outstanding was 58,099,465, while outstanding options granted under the stock option plan were 2,220,301.

Contractual Obligations

Apart from the financing mentioned above, 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 2007 Annual Report.

About Theratechnologies

Theratechnologies (TSX:TH) is a Canadian biopharmaceutical company that discovers innovative drug candidates in order to develop them and bring them to market. The Company targets unmet medical needs in financially attractive specialty markets. Its most advanced program is tesamorelin, now in a confirmatory Phase 3 clinical trial for a serious metabolic disorder known as HIV-associated lipodystrophy. The Company also has other projects at earlier stages of development.

Additional Information about Theratechnologies

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

Forward-Looking Information

This press release and the management's discussion and analysis for the fourth quarter contained herein 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 Phase 3 clinical program of tesamorelin (such as the completion and announcement of the results of the Phase 3 studies, the filing of a New Drug Application with the U.S. Food and Drug Administration (the "FDA")) and the commercialization of tesamorelin in HIV-associated lipodystrophy. Words such as "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 negative results that the confirmatory Phase 3 clinical study may yield, the risk that the Company may not obtain all required approvals from the FDA to market its products, the risk that the Company's products may not be accepted by the market, the difficulties the Company may encounter in building its sales force and the delays that may occur if the Company encounters problems with a third-party supplier of services.

Although the forward-looking information contained in this press release and the management's discussion and analysis for the fourth quarter 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 that past results obtained from the first Phase 3 clinical study will be repeated, that the time required to analyze and report the results of the Company's clinical studies will be consistent with past timing, that discussions to be held with the FDA will be positive, that market data and reports reviewed by the Company are accurate and that current relationship with the Company's third party suppliers of services and products will remain good.

Consequently, all of the forward-looking information contained in this press release and the documents incorporated herein by reference are 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, financial condition or results of operation. Investors are referred to the Company's public filings available at www.sedar.com. In particular, further details and descriptions of these and other factors are disclosed in the "Risk and Uncertainties" section of the Company's Annual Information Form, dated January 29, 2008, for the year ended November 30, 2006. 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.



Consolidated Financial Statements of
(Unaudited)

THERATECHNOLOGIES INC.

Three-month periods ended February 29, 2008 and February 28, 2007


THERATECHNOLOGIES INC.
Consolidated Balance Sheets
(Unaudited)

February 29, 2008, with comparative figures as at November 30, 2007
(in thousands of dollars)

--------------------------------------------------------------------------
--------------------------------------------------------------------------
February 29, November 30,
2008 2007
--------------------------------------------------------------------------
(Audited)

Assets

Current assets:
Cash $17,388 $2,578
Bonds 24,480 27,466
Accounts receivable 335 451
Tax credits receivable 1,906 1,418
Research supplies 1,160 2,110
Prepaid expenses 742 414
--------------------------------------------------------------------------
46,011 34,437

Bonds 37,264 30,324
Investments in public companies 293 635
Property and equipment 1,655 1,722
Other assets (note 3) 7,323 7,472
--------------------------------------------------------------------------
$92,546 $74,590
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $8,879 $8,613

Shareholders' equity:
Capital stock (note 4) 268,888 238,842
Contributed surplus 4,962 4,807

Accumulated other comprehensive loss (15) (333)
Deficit (190,168) (177,339)
--------------------------------------------------------------------------
(190,183) (177,672)
---------------------------------------------------------------------------
Total shareholders' equity 83,667 65,977
--------------------------------------------------------------------------
$92,546 $74,590
--------------------------------------------------------------------------
--------------------------------------------------------------------------

See accompanying notes to unaudited consolidated financial statements.



THERATECHNOLOGIES INC.
Notes to Consolidated Statements of Earnings
(Unaudited)

Three-month periods ended February 29, 2008 and February 28, 2007
(in thousands of dollars, except per share amounts)

--------------------------------------------------------------------------
--------------------------------------------------------------------------
First quarter
--------------------------------------------------------------------------
2008 2007
--------------------------------------------------------------------------

Revenues:
Royalties, technologies and other $5 $4
Interest 594 283
--------------------------------------------------------------------------
599 287

Operating costs and expenses:
Research and development 9,484 8,100
Tax credits (488) (762)
--------------------------------------------------------------------------
8,996 7,338

General and administrative 1,841 1,798
Selling and market development 457 395
Patents and amortization of other assets 196 195
--------------------------------------------------------------------------
11,490 9,726
--------------------------------------------------------------------------
Net loss $(10,891) $(9,439)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Basic and diluted loss per share (note 4 (C)) $(0.20) $(0.20)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted average number of
common shares outstanding 55,260,757 47,025,731
--------------------------------------------------------------------------
--------------------------------------------------------------------------



Consolidated Statements of Comprehensive Earnings
(Unaudited)

Three-month periods ended February 29, 2008 and February 28, 2007
(in thousands of dollars)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
First quarter
--------------------------------------------------------------------------
2008 2007
--------------------------------------------------------------------------

Net loss $(10,891) $(9,439)
Unrealized gains on available-for-sale
financial assets 318 234

--------------------------------------------------------------------------
Comprehensive loss $(10,573) $(9,205)
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--------------------------------------------------------------------------

See accompanying notes to unaudited consolidated financial statements.



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

Three-month period ended February 29, 2008
(in thousands of dollars)

---------------------------------------------------------------------------
---------------------------------------------------------------------------
Accumu-
lated
other
Capital stock Contri- compre-
----------------- buted hensive
Number Dollars surplus income Deficit Total
---------------------------------------------------------------------------

Balance,
November
30, 2007 54,531,133 $238,842 $4,807 $(333) $(177,339) $65,977

Issuance of
share
capital
(note 4) 3,500,000 29,750 - - - 29,750

Share issue
costs - - - - (1,938) (1,938)

Exercise of
stock
options:
Cash
proceeds 68,332 242 - - - 242
Ascribed
value - 54 (54) - - -

Stock-based
compensation - - 209 - - 209

Net loss - - - - (10,891) (10,891)

Unrealized
gains on
available-for
-sale
financial
assets - - - 318 - 318
---------------------------------------------------------------------------
Balance,
February
29, 2008 58,099,465 $268,888 $4,962 $(15) $(190,168) $83,667
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to unaudited consolidated financial statements.



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

Three-month periods ended February 28, 2007
(in thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Accumu-
lated
other
Capital stock Contri- compre-
----------------- buted hensive
Number Dollars surplus income Deficit Total
---------------------------------------------------------------------------

Balance,
November
30, 2006 46,775,359 $177,552 $3,486 $- $(136,563) $4,475

Issuance of
share
capital 6,875,000 57,750 - - - 57,750

Share issue
costs - - - - (3,238) (3,238)

Exercise of
stock
options:
Cash
proceeds 203,499 763 - - - 763
Ascribed
value - 352 (352) - - -

Stock-based
compensation - - 1,635 - - 1,635

Changes in
accounting
policies - - - 79 - 79

Net loss - - - - (9,439) (9,439)
Unrealized
gains on
available-for
-sale
financial
assets - - - 234 - 234
---------------------------------------------------------------------------
Balance,
February
28, 2007 53,853,858 $236,417 $4,769 $313 $(149,240) $92,259
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to unaudited consolidated financial statements.



THERATECHNOLOGIES INC.
Consolidated Statements of Cash Flows
(Unaudited)

Three-month periods ended February 29, 2008 and February 28, 2007
(in thousands of dollars)

--------------------------------------------------------------------------
--------------------------------------------------------------------------
First quarter
--------------------------------------------------------------------------
2008 2007
--------------------------------------------------------------------------

Cash flows from operating activities:
Net loss $(10,891) $(9,439)
Adjustments for:
Depreciation of property and equipment 151 116
Amortization of other assets 134 126
Stock-based compensation 209 1,635
--------------------------------------------------------------------------
(10,397) (7,562)

Changes in operating assets and liabilities:
Interest receivable on bonds (53) 200
Accounts receivable 141 (258)
Tax credits receivable (488) 341
Research supplies 950 (679)
Prepaid expenses (328) (115)
Accounts payable and accrued liabilities (32) (130)
--------------------------------------------------------------------------
190 (641)
--------------------------------------------------------------------------
(10,207) (8,203)

Cash flows from financing activities:
Share issuances 29,992 58,513
Share issue costs (1,504) (2,986)
--------------------------------------------------------------------------
28,488 55,527

Cash flows from investing activities:
Addition to property and equipment (166) (64)
Addition to other assets (64) (34)
Acquisition of bonds (10,107)
Disposal of bonds 6,866 7,775
---------------------------------------------------------------------------
(3,471) 7,677
---------------------------------------------------------------------------
Net change in cash 14,810 55,001
Cash, beginning of period 2,578 16
--------------------------------------------------------------------------
Cash, end of period $17,388 $55,017
--------------------------------------------------------------------------
--------------------------------------------------------------------------

See note 5 (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 29, 2008 and February 28, 2007
(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. 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 auditors.

2. New accounting policies:

a) Adoption of new accounting standards:

Effective with the commencement of its 2008 fiscal year, the Company has adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1535, Capital Disclosures, CICA Handbook Section 3862, Financial Instruments - Disclosures, and CICA Handbook Section 3863, Financial Instruments - Presentation. The Sections relate to disclosure and presentation only and did not have an impact on our financial results (see notes 6 and 7).

(b) Future accounting changes:

Inventories

In June 2007, the CICA issued 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. This Section will apply to the Company's interim and annual financial statements beginning December 1, 2008. The Company has not yet determined what the impact of adopting this standard will have on the consolidated financial statements.

Goodwill and intangible assets

In January 2008, the CICA issued Section 3064, Goodwill and Intangible Assets, which will replace Section 3062, Goodwill and Other Intangible Assets. The standard provides guidance on the recognition of intangible assets in accordance with the definition of an asset and the criteria for asset recognition as well as clarifying the application of the concept of matching revenues and expenses, whether these assets are separately acquired or internally developed. This standard will apply to the Company's interim and annual financial statements beginning on December 1, 2008. The Company has not yet determined what the impact of adopting this standard will have on the consolidated financial statements.

International Financial Reporting Standards

In 2005 the Accounting Standards Board of Canada (AcSB) announced that accounting standards in Canada are to converge with IFRS. In May 2007, the CICA published an updated version of its "Implementation Plan for Incorporating International Financial Reporting Standards into Canadian GAAP". This plan includes an outline of the key decisions that the CICA will need to make as it implements the Strategic Plan for publicly accountable enterprises that will converge Canadian generally accepted accounting standards with IFRS. While IFRS uses a conceptual framework similar to Canadian GAAP, there are significant differences in accounting policy which must be addressed. The CICA has confirmed the changeover date from current Canadian GAAP to IFRS to be January 1, 2011.



3. Other assets:

-------------------------------------------------------------
-------------------------------------------------------------
February 29,
2008
-------------------------------------------------------------

Accumulated Net book
Cost depreciation value
-------------------------------------------------------------

Intellectual property $7,670 $2,810 $4,860
Patent costs 2,003 1,089 914
Research supplies 1,524 - 1,524
Other assets 25 - 25

-------------------------------------------------------------
$11,222 $3,899 $7,323
-------------------------------------------------------------
-------------------------------------------------------------



-------------------------------------------------------------
-------------------------------------------------------------
November 30,
2007
-------------------------------------------------------------

Accumulated Net book
Cost depreciation value
-------------------------------------------------------------

Intellectual property $7,670 $2,713 $4,957
Patent costs 1,993 1,052 941
Research supplies 1,524 - 1,524
Other assets 50 - 50

-------------------------------------------------------------
$11,237 $3,765 $7,472
-------------------------------------------------------------
-------------------------------------------------------------


4. Capital stock:

On February 13, 2008, the Company completed a public offering for the sale and issue of 3,500,000 common shares, for cash proceeds, of $29,750. The issuance costs amounted to $1,938.

(a) Share option plan:

Changes in outstanding options granted under the Company's stock option plan for the year ended November 30, 2007 and the three-month period ended February 29, 2008 were as follows:



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

Options as at November 30, 2006 (audited) 2,551,000 $4.26
Granted 608,500 9.41
Cancelled (84,167) 2.80
Expired (867,700) 2.76

-------------------------------------------------------------------------
Options as at November 30, 2007 (audited) 2,207,633 6.32

Granted 81,000 8.63
Exercised (68,332) 3.53

-------------------------------------------------------------------------
Options as at February 29, 2008 2,220,301 $6.49
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

The 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:

------------------------------------------------
------------------------------------------------
2008 2007
------------------------------------------------

Risk-free interest rate 3,53% 4.04%
Volatility 69% 68%
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 historical exercise patterns. 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 February 29, 2008 and February 28, 2007:



------------------------------------------------
------------------------------------------------
Weighted average
Number of grant-date
options fair value
------------------------------------------------

2008 81,000 $5.57
2007 288,500 $5.31

------------------------------------------------
------------------------------------------------


(C) Diluted loss per share:

Diluted loss per share was not presented as the effect of 2,220,301 options and would have been anti-dilutive. Furthermore, the exercise of 631,500 options (2007 - 606,500 options and warrants) would not been considered in such computation, since their exercise prices were higher than the average market price during the reporting periods of 2008 and 2007.

5. Supplemental information:

(a) The following transactions were conducted by the Company and did not impact cash flow:



--------------------------------------------------------------------------
--------------------------------------------------------------------------
February 29, November 30,
2008 2007
--------------------------------------------------------------------------

Additions to property and equipment included in
accounts payable and accrued liabilities $65 $147

Additions to other assets financed included in
accounts payable and accrued liabilities 10 64

Share issue costs included in accounts
payable and accrued liabilities 434 -

--------------------------------------------------------------------------
--------------------------------------------------------------------------


(b) The Company has not reclassed any amount in the net loss in 2008 for realized losses on available-for-sale financial assets previously recorded in accumulated other comprehensive income ($23 in 2007).

6. Capital disclosures:

The Company's objective in managing capital is to ensure a sufficient liquidity position to finance its research and development activities, general and administrative expenses, working capital and overall capital expenditures, including those associated with patents. The Company makes every attempt to manage its liquidity to minimize shareholder dilution when possible.

To fund its activities, the Company has followed an approach that relies almost exclusively on the issuance of common equity. Since inception, the Company has financed its liquidity needs primarily through public offerings of common shares and private placements. When possible, the Company tries to optimize its liquidity needs by non-dilutive sources, including investment tax credits, grants, interest income as well as proceeds and royalties from technologies.

The Company's policy is to maintain a minimum level of debt. The Company has a line of credit of $1,800 for its short-term financing needs. As at February 29, 2008, this line of credit has not been used.

The capital management objectives remain the same as for the previous fiscal year.

At February 29, 2008, cash and bonds amounted to $79,132 and tax credits receivable amounted to $1,906, for a total of $81,038. Reflecting the financing of February 2008, as disclosed in note 4 to the unaudited consolidated financial statements ("Capital stock"), the Company believes that its cash position will be sufficient to finance its operations and capital needs for at least one year.

The Company's general policy on dividends is to retain cash to keep funds available to finance the Company's growth. However, the Board of Directors may, from time to time, choose to declare a dividend in assets if warranted by circumstances.

The Company is not subject to any capital requirements imposed by a regulator.

7. Financial risk management:

This note provides disclosures relating to the nature and extent of the Company's exposure to risks arising from financial instruments, including credit risk, liquidity risk, foreign currency risk and interest rate risk, and how the Company manages those risks.

(a) Credit risk:

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company regularly monitors the credit risk exposure and takes steps to mitigate the likelihood of these exposures from resulting in actual loss.

Financial instruments other than cash that potentially subject the Company to significant concentrations of credit risk consist principally of bonds. The Company invests its available cash in fixed income instruments from governmental, paragovernmental and municipal bonds ($54,721 as at February 29, 2008) as well as from corporations ($7,023 as at February 29, 2008) with high credit ratings (not less than BBB+).

As at February 29, 2008, the Company's maximum credit risk exposure corresponded to the carrying amount of the bonds.

(b) Liquidity risk:

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage, as outlined in Note 6 to the unaudited consolidated financial statements ("Capital Disclosures"). It also manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors and/or the Audit Committee reviews and approves the Company's operating and capital budgets, as well as any material transactions out of the ordinary course of business.

The Company has investment policies that ensure the safety and preservation of its principal to ensure the Company's liquidity needs are met.

The instruments are selected with regard to the expected timing of expenditures and prevailing interest rates. Bonds mature during the following fiscal years: $21,348 in 2008, $13,154 in 2009, $11,251 in 2010, $12,664 in 2011 and $3,327 in 2012.

The following are the contractual maturities of financial liabilities as of February 29, 2008:



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--------------------------------------------------------------------------
Carrying Less than 1 to 3
(in thousands of dollars) amount 1 year years
--------------------------------------------------------------------------

Accounts payable and accrued liabilities $8,879 $8,879 $-
Operating leases 1,761 605 1,156

--------------------------------------------------------------------------
$10,640 $9,484 $1,156
--------------------------------------------------------------------------
--------------------------------------------------------------------------


(C) Foreign currency risk:

The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. Foreign currency risk is limited to the portion of the Company's business transactions denominated in currencies other than the Canadian dollar, primarily expenses for research and development incurred in US dollars, EURO and GBP. The Company does not use derivative financial instruments to reduce its foreign exchange exposure.

The Company manages foreign exchange risk by maintaining US cash on hand to support US forecasted cash outflows over a 12-month time horizon at the beginning of the fiscal year. The Company does not currently view its exposure to the EURO and GBP as a significant foreign exchange risk due to the limited volume of transactions conducted by the Company in these currencies.

The Company believes that the results of operations and cash flows would be affected by a sudden change in foreign exchange rates, but would not impair or enhance its ability to pay its US dollar denominated obligations.

The following table provides significant items exposed to foreign exchange as at February 29, 2008:



---------------------------------------------------------------------
---------------------------------------------------------------------
February 29,
(in thousands of Canadian dollars) 2008
---------------------------------------------------------------------
$US EURO GBP

Cash 8,138 - -
Accounts receivable - - -
Accounts payable and accrued liabilities (2,892) (175) (462)

---------------------------------------------------------------------
5,246 (175) (462)
---------------------------------------------------------------------
---------------------------------------------------------------------

The following exchange rates applied during the three-month period ended
February 29, 2008:

----------------------------------------
----------------------------------------
Reporting
Average rate date rate
Q1 2008 Q1 2008
----------------------------------------
$US - $CA 1.0048 0.9844
EUR - $CA 1.4749 1.4944
GBP - $CA 1.9932 1.9561

----------------------------------------
----------------------------------------

Based on the Company's foreign currency exposures noted above, varying the
above foreign exchange rates to reflect a 5 percent strengthening of the
Canadian dollar would have (increased) decreased the net loss as follows,
assuming that all other variables remained constant:

------------------------------------------------------
------------------------------------------------------
(in thousands of Canadian dollars) $US EURO GBB
------------------------------------------------------

Decrease (increase) net loss (262) 9 23
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An assumed 5 percent weakening of the Canadian dollar would have had an equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

(d) Interest rate risk:

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Short-term bonds of the Company are invested at fixed interest rates and mature in the short-term. Long-term bonds are also instruments that bear interest at fixed rates. The risk that the Company will realize a loss as a result of a decline in the fair value of its bonds is limited because these investments, although available for sale, are generally held to maturity.

Cash bears interest at a variable rate. Accounts receivable, accounts payable and accrued liabilities bear no interest.

Based on the value of variable interest-bearing cash during the three months ended February 29, 2008, an assumed 0.5% increase in interest rates during such period would have decreased the net loss by $6, with an equal but opposite effect for an assumed 0.5% decrease in interest rates.

8. 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.

(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 $97 ($13 in 2007) for the three-month period ended February 29, 2008.

Contact Information

  • Theratechnologies Inc.
    Andrea Gilpin
    Executive Director, IR & Communications
    514-336-4804, ext. 205
    communications@theratech.com
    or
    Theratechnologies Inc
    Luc Tanguay
    Senior Executive Vice President and Chief Financial Officer
    514-336-4804, ext. 204
    ltanguay@theratech.com