Theratechnologies inc.
TSX : TH

Theratechnologies inc.

March 25, 2009 20:55 ET

Theratechnologies Announces Financial Results of the First Quarter 2009

MONTREAL, QUEBEC--(Marketwire - March 25, 2009) - Theratechnologies inc. (TSX:TH)

- Strong financial position

- Expenses trending lower

Theratechnologies (TSX:TH) today announced its financial results for the first quarter ended February 28, 2009.

"We ended the first quarter of 2009 with $72 million in liquidities and with expenses trending lower", said Luc Tanguay, Senior Executive Vice-President and Chief Financial Officer. "This is due to the payment received at closing under the agreement with EMD Serono and a decrease in research and development expenses," he explained. "Today, we are able to look to the future of Theratechnologies with confidence, having the funds necessary to finance our business plan without any need to access capital markets," Mr. Tanguay concluded

"With an enviable financial position, a New Drug application in the process of being finalized and an ideal partner in the United States, Theratechnologies finds itself uniquely positioned with several very interesting growth options, whether it be by partnership agreements outside the United States or by launching a new clinical program with tesamorelin," stated Yves Rosconi, President and Chief Executive Officer. "We will be discussing these options as well as the major thrusts of the business plan with our shareholders at the annual and special meeting, which will be held tomorrow at the Sheraton Center Montreal," Mr. Rosconi added.

Reminder: Theratechnologies' annual and special meeting of shareholders will be held on Thursday, March 26, at 10:00 a.m., in the Drummond Room of the Sheraton Center Montreal, 1201 Rene-Levesque Blvd. West, Montreal.

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FIRST QUARTER

Revenues

Consolidated revenues for the three-month period ended February 28, 2009 amounted to $2,009,000 compared to $599,000 in 2008. The higher revenues in 2009 are related to the payment received on December 15, 2008 upon the closing of the collaboration and license agreement with EMD Serono, Inc. ("EMD Serono"). This payment of US $30,000,000 (Can $ 36,951,000) includes an initial payment of US $22,000,000 (Can $ 27,097,000) and a subscription for common shares by Merck KGaA at a price of US $3.67 (Can $4.52) per share, resulting in gross proceeds of US $8,000,000 (Can $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 future based on additional information that may be obtained by the Company. For the three-month period ended February 28, 2009, an amount of $1,426,000 related to this transaction was recognized as revenue. At February 28, 2009, the deferred revenues related to this transaction amounted to $25,671,000.

R&D Activities

Consolidated research and development (R&D) expenditures, before tax credits, totalled $6,315,000 for the first quarter of 2009, compared to $9,484,000 in the same period of 2008, a decrease of 33.4%. The lower level of R&D expenses is due to the end of the clinical trials being conducted as part of the confirmatory Phase 3 study evaluating tesamorelin in HIV-associated lipodystrophy. The research and development expenses incurred in the first quarter of 2009 are essentially related to closing activities for the confirmatory Phase 3 study, notably data compilation and the preparation of the New Drug Application.

Other Expenses

For the first quarter of 2009, general and administrative expenses were $2,321,000, compared to $1,598,000 in 2008. The higher expenses in 2009 are essentially due to an increase in the exchange loss as well as costs associated with revising the Company's business plan.

Sales and market development costs were $481,000 in the first quarter of 2009 compared to $457,000 for the same period in 2008. 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.

Other expenses include an amount of $4,269,000 for fees payable at the closing of the transaction with EMD Serono.

Net Results

Reflecting the changes in revenues and expenses described above, the Company recorded a first-quarter net loss of $10,754,000 (0.18 per share), compared to $10,864,000 (0.20 per share) for the same period in 2008.

The net loss in 2009 includes revenue of $1,426,000 and a non-recurring expense of $4,269,000 related to the agreement with EMD Serono. Excluding these two items, the adjusted net loss (see Annex A) amounts to $7,911,000, a decrease of 27.2% compared to the corresponding 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)

--------------------------------------------------------------------------
--------------------------------------------------------------------------
2009 2008
--------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1
--------------------------------------------------------------------------
Revenues $2,009 $616 $710 $716 $599
Net loss $(10,754) $(15,145) $(11,220) $(11,382) $(10,864)
Basic and diluted
loss per share $(0.18) $(0.26) $(0.19) $(0.20) $(0.20)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


--------------------------------------------------------------------------
--------------------------------------------------------------------------
2007
--------------------------------------------------------------------------
Q4 Q3 Q2
--------------------------------------------------------------------------
Revenues $1,294 $748 $805
Net loss $(10,300) $(9,820) $(8,124)
Basic and diluted loss per share $(0.19) $(0.18) $(0.15)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


As descried above, the higher revenues in 2009 are related to the amortization of the initial payment received at the closing of the collaboration and license agreement with EMD Serono. The increase in the fourth quarter net loss in 2008 is due to an impairment loss recorded related to intellectual property.

Financial Position

At February 28, 2009, liquidities, which include cash and bonds, amounted to $69,389,000 and tax credits receivable amounted to $2,452,000 for a total of $71,841,000.

For the three-month period ended February 28, 2009, the burn rate from operating activities, excluding changes in operating assets and liabilities, was $10,412,000, compared to $10,407,000 in 2008.

Excluding the revenue of $1,426,000 and the non-recurring expense 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 $7,569,000, a decrease of 27.3% compared to the corresponding period in 2008.

New Accounting Policies

Refer to note 2 of the Company's unaudited Consolidated Financial Statements for the first quarter 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 at the beginning of 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 on the consolidated statements of earnings were reduced by $27,000 for the first quarter of 2008.

Outstanding Share Data

On March 24, 2009, the number of shares issued and outstanding was 60,394,927, while outstanding options granted under the stock option plan were 2,671,967.

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 2008 Annual Report.

About Theratechnologies

Theratechnologies 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 specialty markets. Its most advanced compound, tesamorelin, is an analogue of the growth hormone releasing factor. In 2008, Theratechnologies completed a confirmatory Phase 3 clinical trial evaluating tesamorelin in treating excess abdominal fat in HIV patients with lipodystrophy, a serious metabolic disorder. 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 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, in particular, information on the preparation of a New Drug Application ("NDA") for submission to the Food and Drug Administration ("FDA") in the United States, the commercialization of tesamorelin for the treatment of HIV-associated lipodystrophy and the financial autonomy of the Company. 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 future or 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, which 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, in particular, difficulties, regulatory or otherwise, which the Company may face for submission of an NDA to the FDA, 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, delays or cost overruns that could result from the use of third-party suppliers and a change in the Company's business plan that requires additional funds.

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 used in these forward looking statements, and the Company's anticipated objectives, take into consideration that the administration of tesamorelin to patients will not have any significant adverse side-effects, that the Company will have access to all the data and necessary resources to submit a NDA to the FDA, that the Company will continue to have a good business relationship with its third party suppliers and that the Company's business plan will not be substantially modified, such that it could necessitate a need for additional funds.

Consequently, all of the forward-looking information contained herein 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 and represents the Company's expectations as of that date.

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.



THERATECHNOLOGIES INC.

Consolidated Financial Statements (Unaudited)

Three-month periods ended February 28, 2009 and February 29, 2008



THERATECHNOLOGIES INC.
Consolidated Balance Sheets
(Unaudited)

February 28, 2009 and November 30, 2008
(in thousands of dollars)
-------------------------------------------------------------------
-------------------------------------------------------------------
February November
28, 2009 30, 2008
-------------------------------------------------------------------
(Restated -
note 2 (a))

Assets

Current assets:
Cash $6,891 $133
Bonds 9,786 10,955
Accounts receivable 559 610
Tax credits receivable 2,452 1,784
Inventories 1,594 -
Research supplies 711 301
Prepaid expenses 456 397
-------------------------------------------------------------------
22,449 14,180

Bonds 52,712 35,249
Investments in public companies 56 41
Property and equipment 1,247 1,299
Other assets (note 3) 2,208 2,776

-------------------------------------------------------------------
$78,672 $53,545
-------------------------------------------------------------------
-------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $7,045 $7,198
Current portion of deferred revenues (note 7) 6,856 -
-------------------------------------------------------------------
13,901 7,198

Deferred revenues (note 7) 18,825 -

Shareholders' equity:
Capital stock (note 4) 279,073 269,219
Contributed surplus 5,790 5,585


Accumulated other comprehensive income 666 372
Deficit (239,583) (228,829)
-------------------------------------------------------------------
(238,917) (228,457)

-------------------------------------------------------------------
Total shareholders' equity 45,946 46,347

-------------------------------------------------------------------
$78,672 $53,545
-------------------------------------------------------------------
-------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.


THERATECHNOLOGIES INC.
Consolidated Statement of Earnings
(Unaudited)

Three-month periods ended February 28, 2009 and February 29, 2008
(in thousands of dollars, except per share amounts)
-------------------------------------------------------------------
-------------------------------------------------------------------
First quarter
-------------------------------------------------------------------
2009 2008
-------------------------------------------------------------------
(Restated -
note 2 (a))

Revenues:
Royalties, technologies and other (note 7) $1,432 $5
Interest 577 594
-------------------------------------------------------------------
2,009 599

Operating costs and expenses:
Research and development 6,315 9,484
Tax credits (668) (488)
-------------------------------------------------------------------
5,647 8,996
General and administrative 2,321 1,598
Selling and market development 481 457
Patents and amortization of other assets 45 169
Fees associated with the
strategic review process - 243
Fees associated with collaboration
and licensing agreement (note 7) 4,269 -
-------------------------------------------------------------------
12,763 11,463

-------------------------------------------------------------------
Net loss $(10,754) $(10,864)
-------------------------------------------------------------------
-------------------------------------------------------------------

Basic and diluted loss per share (note 4 (C)) $(0.18) $(0.20)
-------------------------------------------------------------------
-------------------------------------------------------------------

Weighted average number of common shares
outstanding 60,055,841 55,260,757
-------------------------------------------------------------------
-------------------------------------------------------------------


Consolidated Statements of Comprehensive Loss
(Unaudited)

Three-month periods ended February 28, 2009 and February 29, 2008
(in thousands of dollars)
-------------------------------------------------------------------
-------------------------------------------------------------------
First quarter


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

Net loss $(10,754) $(10,864)
Unrealized gains on available-for-sale
financial assets 317 318
Reclassification adjustment for gains and
losses on available-for-sale financial assets (23) -
-------------------------------------------------------------------
Comprehensive loss $(10,460) $(10,546)
-------------------------------------------------------------------
-------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.



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

Three-month period ended February 28, 2009
(in thousands of dollars)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accu-
mulated
other
Capital stock Con- compre-
---------------- tributed 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 7) 2,179,837 9,854 - - - 9,854



Stock-based
compensation - - 205 - - 205

Net loss - - - - (10,754) (10,754)

Unrealized gains
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.



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

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Accu-
mulated
other
Capital stock Con- compre-
---------------- tributed hensive
Number Dollars surplus income Deficit Total
--------------------------------------------------------------------------

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

Change in
accounting
policies
(note 2 (a)) - - - - (941) (941)

Issuance of
share capital 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 - - - - (10,864) (10,864)

Unrealized gains
on available-
for-sale
financial assets - - - 318 - 318

--------------------------------------------------------------------------
Balance,
February 29,
2008 $58,099,465 $268,888 $4,962 $(15) $(191,082)$82,753
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.



THERATECHNOLOGIES INC.
Consolidated Statements of Cash Flows
(Unaudited)

Three-month periods ended February 28, 2009 and February 29, 2008
(in thousands of dollars)
-------------------------------------------------------------------
-------------------------------------------------------------------
First quarter


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

Cash flows from operating activities:
Net loss $(10,754) $(10,864)
Adjustments for:
Amortization of property and equipment 137 151
Amortization of other assets - 97
Stock-based compensation 205 209
-------------------------------------------------------------------
(10,412) (10,407)

Changes in operating assets and liabilities:
Interest receivable on bonds (969) (53)
Accounts receivable 76 141
Tax credits receivable (668) (488)
Inventories (1,594) -
Research supplies 133 950
Prepaid expenses (59) (328)
Accounts payable and accrued liabilities (128) (86)
Deferred revenues 25,681 -
-------------------------------------------------------------------
22,472 136

-------------------------------------------------------------------
12,060 (10,271)

Cash flows from financing activities:
Share issuance 9,854 29,992
Share issue costs (8) (1,504)
-------------------------------------------------------------------
9,846 28,488

Cash flows from investing activities:
Addition to property and equipment (102) (166)
Acquisition of bonds (19,631) (10,107)
Disposal of bonds 4,585 6,866
-------------------------------------------------------------------
(15,148) (3,407)

-------------------------------------------------------------------
Net change in cash 6,758 14,810

Cash, beginning of period 133 2,578

-------------------------------------------------------------------
Cash, end of period $6,891 $17,388
-------------------------------------------------------------------
-------------------------------------------------------------------
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 28, 2009 and February 29, 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 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 has 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 as well as clarifying the application of the concept of matching revenues and expenses, 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 the beginning of 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 $27 for the first quarter of 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.

(b) Future accounting changes:

International Financial Reporting Standards

In February 2008, Canada's Accounting Standards Board of Canada ("AcSB") confirmed that Canadian GAAP, as used by publicly accountable enterprises, would 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 has not determined the impact of adopting the standards on its consolidated financial statements.



3. Other assets:

--------------------------------------------------------------------------
--------------------------------------------------------------------------
February 28,
2009
--------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
--------------------------------------------------------------------------
Intellectual property $7,670 $7,670 $-
Research supplies 2,208 - 2,208
--------------------------------------------------------------------------
$9,878 $7,670 $2,208
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
--------------------------------------------------------------------------
November 30,
2008
--------------------------------------------------------------------------
(Restated -
note 2 (a))
--------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
--------------------------------------------------------------------------

Intellectual property $7,670 $7,670 $-
Research supplies 2,751 - 2,751
Other assets 25 - 25

--------------------------------------------------------------------------
$10,446 $7,670 $2,776
--------------------------------------------------------------------------
--------------------------------------------------------------------------


4. Capital stock:

(a) Share option plan:

Changes in outstanding options granted under the Company's stock option plan for the year ended November 30, 2008 and the three-month period ended February 28, 2009 were as follows:



-------------------------------------------------------------------
-------------------------------------------------------------------
Weighted
Average
exercise
Number price
-------------------------------------------------------------------

Options as at November 30, 2007 (audited) 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 (audited) 2,161,800 6.52

Granted 590,500 1.80
Cancelled and expired (80,333) 10.05

-------------------------------------------------------------------
Options as at February 28, 2009 2,671,967 $5.37
-------------------------------------------------------------------
-------------------------------------------------------------------


(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:



-------------------------------------------------------------------
-------------------------------------------------------------------
2009 2008
-------------------------------------------------------------------

Risk-free interest rate 1.79% 3.53%
Volatility 79% 69%
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, and 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 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 28, 2009 and February 29, 2008:



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

2009 590,500 $1.24
2008 81,000 5.57

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


(c) Diluted loss per share:

Diluted loss per share was not presented as the effect of options would have been anti-dilutive. Furthermore, 2,391,130 options (2008 - 631,500) could have an effect on the calculation in the future, since their exercise prices were higher than the average market price during the reporting periods of 2009 and 2008.

5. Supplemental information:

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



-------------------------------------------------------------------
-------------------------------------------------------------------
February 28, November 30,
2009 2008
-------------------------------------------------------------------
(Restated -
note 2 (a))

Additions to property and equipment included in
accounts payable and accrued liabilities $31 $48

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

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


(b) For the three-month period ended February 28, 2009, the Company has reclassified in net earnings $23 of realized gains on available-for-sale financial assets previously recorded in accumulated other comprehensive income (2008 - nil).

6. 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 prices quoted on active markets.

(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 $416 ($97 in 2008) for the three-month period ended February 28, 2009.

7. Collaboration and licensing agreement:

On October 28, 2008, the Company entered into a collaboration and licensing agreement with EMD Serono, Inc., and affiliate of Merck KGaA, regarding the exclusive commercialization rights of tesamorelin in the United States for the treatment of excess abdominal fat in HIV 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 (CAD$265,000), 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 three-month period ended February 28, 2009, an amount of $1,426 related to this transaction was recognized as revenue. At February 28, 2009, the deferred revenues related to this transaction amounted to $25,671.

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.

8. Comparative figures:

Certain of the 2008 comparative figures have been reclassified to conform with the financial statement presentation adopted in 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 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 2009 2008
Net loss, per the financial statements $(10,754) $(10,864)
Adjustments:
Revenues associated with a collaboration and
license agreement (note 7 to the consolidated
financial statements) $(1,426) -
Fees associated with collaboration and license
agreement $4,269 -
-------------------------------------------------------------------------
Adjusted net loss $(7,911) $(10,864)
-------------------------------------------------------------------------

First Quarter
Adjusted burn rate before changes in operating
assets and liabilities 2009 2008
Burn rate before changes in operating assets and
liabilities, per the financial statements $(10,412) $(10,407)
Adjustments:
Revenues associated with a collaboration and
license agreement (note 7 to the consolidated
financial statements) $(1,426) -
Fees associated with collaboration and license
agreement $4,269 -
-------------------------------------------------------------------------
Adjusted burn rate before changes in operating
assets and liabilities $(7,569) $(10,407)
-------------------------------------------------------------------------

Contact Information

  • Theratechnologies inc.
    Aline Vandermeer
    Coordinator, IR & Communications
    514-336-7800, ext. 229
    avandermeer@theratech.com
    or
    Theratechnologies inc.
    Luc Tanguay
    Senior Executive Vice President and Chief Financial Officer
    514-336-7800, ext. 204
    ltanguay@theratech.com