Theratechnologies inc.
TSX : TH

Theratechnologies inc.

March 28, 2007 12:46 ET

Theratechnologies Enjoys Strong Momentum in First Quarter 2007

- Positive TH9507 Phase 3 results presented at important HIV meeting - Second (confirmatory) Phase 3 trial under way on schedule - $58 million financing completed

MONTREAL, QUEBEC--(CCNMatthews - March 28, 2007) - Theratechnologies (TSX:TH) announced today its financial results for the first quarter ended February 28, 2007 and reviewed recent highlights.

"We met three major milestones in the first quarter," said Yves Rosconi, President and Chief Executive Officer, "The release of very convincing Phase 3 clinical results in December, the start of the second Phase 3 trial in January, and a substantial strengthening of our financial position with a $58 million financing in February. All in all, it was an excellent quarter -- our most productive to date," he stated.

"As the data come out, it is becoming clear that TH9507 has strong prospects as a treatment for excess visceral fat accumulation in HIV patients and potential advantages over other approaches being developed," Mr. Rosconi continued. "For the balance of the year, we are looking forward to the release of more Phase 3 data in parallel with steady progress on the second Phase 3 trial. We have a strong balance sheet, a clear business plan and great momentum so the outlook is very positive," Mr. Rosconi concluded.

Theratechnologies' Annual Meeting of Shareholders will be held on Thursday, March 29, at 10:00 a.m., in the Salon International of the Centre Mont-Royal, 2200 Mansfield Street, Montreal.

Recent highlights:

Positive phase 3 clinical results presented at HIV meeting

In December 2006, the Company announced positive results for its Phase 3 clinical trial, testing TH9507 in HIV-associated lipodystrophy. The primary endpoint and important secondary endpoints were achieved. The study was powered to detect an 8% reduction in visceral adipose tissue (VAT) versus placebo. After 26 weeks, patients on TH9507 achieved a 15% reduction in VAT versus baseline and a 20% difference versus placebo. In addition, TH9507 was shown to be well tolerated by patients.

Forward-looking statements

This press release contains forward-looking statements reflecting the Company's current expectations regarding the TH9507 Phase 3 clinical program including, among others, the nature of the results and their timing. By their very nature, these statements involve uncertainties and inherent risks, both general and specific, which give rise to the possibility that predictions will not materialize. We therefore caution investors against placing undue reliance on these statements. We refer you to pages 16 to 18 of the 2006 annual report, which contain a more exhaustive analysis of the risks and uncertainties connected to the business of the Company. We have no obligation what so ever to update forward-looking statements and we do not undertake to do so.

The Phase 3 results were presented by Dr. Steve Grinspoon, Associate Professor of Medicine, Harvard Medical School and lead investigator for the TH9507 trial in the United States, at the 14th Conference on Retroviruses and Opportunistic Infections (CROI) in Los Angeles, California on February 26, 2007. CROI is a meeting of the world's leading researchers working to understand, prevent, and treat HIV/AIDS and its complications. Dr. Grinspoon's presentation can be viewed in its entirety via the Internet at www.retroconference.org.

Start of second Phase 3 trial

In January 2007, Theratechnologies enrolled the first patient in its second Phase 3 trial testing TH9507. The objective of the new study is to confirm, for regulatory purposes, the results of the first study. The Company expects to complete enrollment in the third quarter of 2007 and announce results in the first quarter of 2008.

In August 2006, the Company received a Special Protocol Assessment (SPA) for this latest trial from the Food and Drug Administration (FDA) in the United States. A special protocol assessment documents the Agency's agreement that the design and planned analysis of a study adequately address objectives in support of a regulatory submission.

$58 million financing

February 2007 marked the successful completion of a public offering of 6,875,000 common shares at a price of $8.40 per share for gross proceeds of $57,750,000. The offering, which was made through a syndicate of underwriters led by BMO Capital Markets, included 625,000 additional shares issued pursuant to an over-allotment option, which was exercised in full by the underwriters. The shares were mainly purchased by institutional investors in the United States and Canada.

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FIRST QUARTER

Revenues

Consolidated revenues for the three-month period ended February 28, 2007 amounted to $287,000, compared to $475,000 in 2006. Revenues for the quarter are mainly composed of interest from investments. In 2006, revenues were higher because they included income for terminating a non-core licence agreement.

R&D activities

Consolidated research and development (R&D) expenditures, before tax credits, totalled $8,100,000 for the first quarter of 2007, compared to $4,285,000 in 2006. The increase in R&D spending in 2007 is primarily related to the execution of the first Phase 3 study for TH9507 and activities for the second Phase 3 study, which started in January 2007.

Other expenses

For the first quarter of 2007, general and administrative expenses, selling and market development expenses, patents and amortization of other assets (SG&A) were $2,388,000, compared to $1,813,000 for the same period in 2006. The increase in expenses in 2007 is principally due to stock-based compensation expenses which were unusually high following a special distribution of stock options to all employees, in January 2007, ($751,000 compared to $425,000 in 2006). The stock-based compensation did not have an impact on the Company's cash flow. In addition, the higher expenses reflect the Company's growth and development.

Net results

Reflecting the changes in revenues and expenses described above, the Company recorded a first-quarter net loss of $9,439,000, compared to $5,477,000 for the same period in 2006.

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.



--------------------------------------------------------------------------
--------------------------------------------------------------------------
2007 2006
--------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1
--------------------------------------------------------------------------
Revenues $287 $367 $412 $395 $475
Operating loss $(9,439) $(6,942) $(7,251) $(6,221) $(5,447)
Net loss $(9,439) $(6,942) $(7,251) $(6,221) $(5,447)
Basic and diluted loss
per share $(0.20) $(0.15) $(0.16) $(0.14) $(0.15)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
--------------------------------------------------------------------------
2005
--------------------------------------------------------------------------
Q4 Q3 Q2
--------------------------------------------------------------------------
Revenues $319 $409 $631
Operating loss $(5,580) $(5,065) $(4,784)
Net loss $(5,651) $(5,218) $(12,745)
Basic and diluted loss per share $(0.16) $(0.15) $(0.36)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Financial position

Theratechnologies maintains a sound financial position. At February 28, 2007, liquidities, which include cash and bonds, amounted to $82,538,000 and tax credits receivable amounted to $1,570,000, for a total of $84,108,000.

During the quarter, the Company completed a public offering for the sale and issuance of 6,875,000 common shares, including those issued pursuant to the over-allotment option, for a cash consideration of $57,750,000. Issue costs totaled $3,238,000, resulting in net proceeds of $54,512,000. During the quarter, the Company also issued 203,499 common shares following the exercise of stock options, for cash proceeds of $763,000.

For the three-month period ended February 28, 2007, the burn rate from operating activities, excluding changes in operating assets and liabilities, was $7,562,000, compared to $4,733,000 in 2006. The increased burn rate in 2007 is the result of the planned increase in Phase 3 program activities which translate into higher R&D expenses as described above.

Changes in accounting policies

At the beginning of the fiscal year 2007, the Company adopted the following sections of the Canadian Institute of Chartered Accountants (CICA) Handbook: Section 1530 entitled "Comprehensive income", Section 3251 entitled "Equity", Section 3855 entitled "Financial instruments -- Recognition and measurement", and Section 3865 entitled "Hedges". These sections of the Handbook apply to quarterly results effective October 1, 2006. The adoption of these standards had no material impact on the Company's operating results (see note 2 of the Consolidated Financial Statements).

Outstanding share data

Between March 1st and March 27, 2007, 270,000 options were exercised, at an average exercise price of $1.92 per share, for cash proceeds of $518,000. On March 27, 2007, the number of shares issued and outstanding was 54,123,858, while outstanding options granted under the stock option plan were 2,361,834.

Contractual obligations

Apart from the financing mentioned above, there were no material changes in contractual obligations, 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 2006 annual report.

About Theratechnologies

Theratechnologies (TSX:TH) is a Canadian biopharmaceutical company that discovers or acquires novel therapeutic products for development and commercialization. These products target unmet medical needs in commercially attractive specialty markets. The most advanced program is TH9507, in Phase 3 clinical development in HIV-associated lipodystrophy. The Company also has other promising 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 is also available on SEDAR at www.sedar.com.




THERATECHNOLOGIES INC.
Consolidated Financial Statements
(Unaudited)

Three-month periods ended February 28, 2007 and 2006


THERATECHNOLOGIES INC.
Consolidated Balance Sheets
(Unaudited)
February 28, 2007, with comparative figures as at November 30, 2006
(in thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
February 28, November 30,
2007 2006
-------------------------------------------------------------------------
(Audited)
Assets

Current assets:
Cash $55,017 $16
Bonds (note 2) 10,643 18,023
Accounts receivable 572 289
Tax credits receivable 1,570 1,911
Research supplies 2,175 850
Prepaid expenses 506 391
-------------------------------------------------------------------------
70,483 21,480
Bonds (note 2) 16,878 17,641

Investments in public companies (market value:
$1,317 in 2007; $1,112 in 2006) (note 2) 1,317 836
Property and equipment 1,648 1,580
Other assets (note 3) 8,648 9,431

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

$98,974 $50,968
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $6,715 $6,493

Shareholders' equity:
Capital stock (note 4) 236,417 177,552
Contributed surplus 4,769 3,486

Accumulated other comprehensive income (note 2) 313 --
Deficit (149,240) (136,563)
-------------------------------------------------------------------------
(148,927) (136,563)
-------------------------------------------------------------------------
Total shareholders' equity 92,259 44,475

-------------------------------------------------------------------------
$98,974 $50,968
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to unaudited consolidated financial statements.



THERATECHNOLOGIES INC.
Consolidated Statements of Earnings
(Unaudited)

Three-month periods ended February 28, 2007 and 2006
(in thousands of dollars, except per share amounts)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
First quarter
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Revenues:
Royalties, technologies and other $4 $178
Interest 283 297
-------------------------------------------------------------------------
287 475

Operating costs and expenses:
Research and development 8,100 4,285
Tax credits (762) (176)
7,338 4,109
General and administrative 1,798 1,458
Selling and market development 395 204
Patents and amortization of other assets 195 151
-------------------------------------------------------------------------
9,726 5,922

Net loss $(9,439) $(5,447)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Basic and diluted loss per share (note 4 (c)) $(0.20) $(0.15)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Weighted average number of common shares
outstanding 47,025,731 35,552,985
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Consolidated Statements of Comprehensive Earnings
(Unaudited)

Three-month periods ended February 28, 2007 and 2006
(in thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
First quarter
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------

Net loss $(9,439) $(5,447)
Unrealized gains on available-for-sale
financial assets 234 --
-------------------------------------------------------------------------
Comprehensive loss $(9,205) $(5,447)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to unaudited consolidated financial statements.



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

Three-month periods ended February 28, 2007 and 2006
(in thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Accumulated
other
Capital stock compre-
----------------- Contributed hensive
Number Dollars surplus income
---------------------------------------------------------------------------

Balance, November 30, 2006 46,775,359 $177,552 $3,486 $--

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

Share issue costs -- -- -- --

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

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

Changes in accounting policies
(note 2) -- -- -- 79

Net loss -- -- -- --

Unrealized gains on
available-for
sale financial assets -- -- -- 234

---------------------------------------------------------------------------
Balance, February 28, 2007 53,853,858 $236,417 $4,769 $313
---------------------------------------------------------------------------
---------------------------------------------------------------------------


---------------------------------------------------------------------------
---------------------------------------------------------------------------
Deficit Total
---------------------------------------------------------------------------

Balance, November 30, 2006 $(136,563) $44,475

Issuance of share capital -- 57,750

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

Exercise of stock options:
Cash proceeds -- 763
Ascribed value -- --

Stock-based compensation -- 1,635

Changes in accounting policies (note 2) -- 79

Net loss (9,439) (9,439)

Unrealized gains on available-for-
sale financial assets -- 234
---------------------------------------------------------------------------
Balance, February 28, 2007 $(149,240) $92,259
---------------------------------------------------------------------------
---------------------------------------------------------------------------

See accompanying notes to unaudited



THERATECHNOLOGIES INC.
Consolidated Statements of Cash Flows
(Unaudited)

Three-month periods ended February 28, 2007 and 2006
(in thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
First quarter
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------

Cash flows from operating activities:
Net loss $(9,439) $(5,447)
Adjustments for:
Depreciation of property and equipment 116 142
Amortization of other assets 126 123
Stock-based compensation 1,635 449
-------------------------------------------------------------------------
(7,562) (4,733)

Changes in operating assets and liabilities:
Interest receivable on bonds 200 245
Accounts receivable (258) (177)
Tax credits receivable 341 (176)
Research supplies (679) (1,414)
Prepaid expenses (115) (78)
Accounts payable and accrued liabilities (130) 585
-------------------------------------------------------------------------
(641) (1,015)

-------------------------------------------------------------------------
(8,203) (5,748)

Cash flows from financing activities:
Share issuances 58,513 --
Share issue costs (2,986) --
-------------------------------------------------------------------------
55,527 --

Cash flows from investing activities:
Addition to property and equipment (64) (77)
Addition to other assets (34) (67)
Disposal of bonds 7,775 4,875
-------------------------------------------------------------------------
7,677 4,731
Net increase (decrease) in cash 55,001 (1,017)

Cash, beginning of period 16 1,087
-------------------------------------------------------------------------
Cash, end of period $55,017 $70
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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, 2007 and 2006 (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. Changes in accounting policies:

Effective the commencement of its 2007 fiscal year, the Company has adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3251, Equity, CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement, CICA Handbook Section 3861, Financial Instruments - Disclosure and Presentation, and CICA Handbook Section 3865, Hedges. These new Handbook Sections, which apply to fiscal years beginning on after October 1, 2006, provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied.

Handbook Section 1530 also establishes standards for reporting and displaying comprehensive income. Comprehensive income is defined as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income but that are excluded from net income calculated in accordance with generally accepted accounting principles. A new financial statement has been presented in relation to the new standards.

Under these new standards, all financial instruments are classified into one of the following five categories: held for trading, held-to-maturity investments, loans and receivables, available-for- sale financial assets or other financial liabilities. All financial instruments, including derivatives, are included on the consolidated balance sheet and are measured either at fair market value with the exception of loans and receivables, investments held-to-maturity and other financial liabilities, which are measured at amortized cost. Subsequent measurement and recognition of changes in fair value of financial instruments depend on their initial classification. Held for trading financial investments are measured at fair value and all gains and losses are included in net income in the period in which they arise. Available-for-sale financial instruments are measured at fair value with revaluation gains and losses included in other comprehensive income until the assets are removed from the balance sheet.

The standards also require derivative instruments to be recorded as either assets or liabilities measured at their fair value unless exempted from derivative treatment as a normal purchase and sale. Certain derivatives embedded in other contracts must also be measured at fair value. All changes in the fair value of derivatives are recognized in earnings unless specific hedge criteria are met, which requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting.

As a result of the adoption of these standards, the Company has classified its bonds and investments in public companies as available-for-sale financial assets and are now measured at fair market value. Previously, these investments were recorded at the lower of cost and fair market value. On December 1, 2007, the impact of $79 of these changes in accounting policies is included in the opening balance of accumulated other comprehensive income.

The adoption of standards of Sections 3251, 3861 and 3855 has no impact on the financial statements for the period ended February 28, 2007.



3. Other assets:

------------------------------------------------------------------------
------------------------------------------------------------------------
February 28,
2007
------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
------------------------------------------------------------------------
Intellectual property $7,670 $2,424 $5,246
Patent costs 1,752 906 846
Research supplies 2,506 -- 2,506
Other assets 50 -- 50
------------------------------------------------------------------------
$11,978 $ 3,330 $ 8,648
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
------------------------------------------------------------------------
November 30,
2006
------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
------------------------------------------------------------------------
Intellectual property $7,670 $2,327 $5,343
Patent costs 1,737 876 861
Research supplies 3,152 -- 3,152
Other assets 75 -- 75
------------------------------------------------------------------------
$12,634 $3,203 $9,431
------------------------------------------------------------------------
------------------------------------------------------------------------


4. Capital stock:

During the first quarter of 2007, the Company concluded a public offering for the sale and issue of 6,875,000 common shares, including the over-allotment option, for cash proceeds, of $57,750. The issuance costs amounted to $3,238.

(a) Share option plan:

Changes in outstanding options granted under the Company's stock option plan for the year ended November 30, 2006 and the three-month period ended February 28, 2007 were as follows:



--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted
average
Number exercise price
--------------------------------------------------------------------------
Options as at November 30, 2005 (audited) 2,300,664 $5.50
Granted 840,000 1.69
Cancelled (234,664) 6.70
Expired (355,000) 4.60

--------------------------------------------------------------------------
Options as at November 30, 2006 (audited) 2,551,000 4.26

Granted 288,500 8.23
Cancelled (4,167) 1.59
Exercised (203,499) 3.75

--------------------------------------------------------------------------
Options as at February 28, 2007 2,631,834 $5.77
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Between March 1, 2007 and March 27, 2007, 270,000 stock options were exercised at a weighted average price of $1.92 per share for a cash consideration of $518,000.

(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:



-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Risk-free interest rate 4.04% 4.03%
Volatility 68% 50%
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 28, 2007 and 2006:



-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted
average
grant-date
Number fair value
-------------------------------------------------------------------------
2007 288,500 $5.31
2006 650,000 0.86
-------------------------------------------------------------------------
-------------------------------------------------------------------------


(c) Diluted loss per share:

Diluted loss per share was not presented as the effect of options and warrants would have been anti-dilutive. Furthermore, the exercise of 606,500 options (2006 - 3,421,500 options and warrants) has not been considered in such computation, since their exercise prices were higher than the average market price during the reporting periods of 2007 and 2006.

5. Supplemental information:

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



------------------------------------------------------------------------
------------------------------------------------------------------------
First quarter
------------------------------------------------------------------------
February 28, November 30,
2007 2006
------------------------------------------------------------------------
Additions to property and equipment
included in accounts payable
and accrued liabilities $122 $2
Additions to other assets financed
included in accounts payable
and accrued liabilities 16 36
Share issue costs included in accounts
payable and accrued liabilities 257 5
------------------------------------------------------------------------
------------------------------------------------------------------------


(b) General and administrative expenses include a loss on foreign exchange of $13 for the first quarter of 2007 (a gain of $49 for the same period in 2006).

(c) The Company has reclassed in the net loss $23 of realized losses on available-for-sale financial assets previously recorded in accumulated other comprehensive income.

(d) In December 2006, the Company received tax credits of $1,103.

Contact Information

  • Theratechnologies
    Luc Tanguay
    Senior Executive Vice President
    and Chief Financial Officer
    514-336-4804, ext. 204
    ltanguay@theratech.com
    or
    Theratechnologies
    Marie-Noel Colussi
    Vice President, Finance
    514-336-4804, ext. 237
    mncolussi@theratech.com