Theratechnologies inc.
TSX : TH

Theratechnologies inc.

October 12, 2006 12:19 ET

Theratechnologies: Financial Results for Third Quarter of 2006 and Recent Operating Highlights

MONTREAL, QUEBEC--(CCNMatthews - Oct. 12, 2006) -



- Results of 1st Phase 3 study expected towards end of 2006
- Significant progress in clinical program for TH9507:
- Special protocol assessment from FDA
- Data and Safety Monitoring Board review
- Preparations for 2nd Phase 3 on track
- Sound liquidity position


Theratechnologies (TSX:TH) announced today its financial results for the third quarter ended August 31, 2006 and reviewed recent highlights.

"The announcement of our Phase 3 results for TH9507 which are expected towards the end of 2006 will be a major milestone for Theratechnologies," said Mr. Yves Rosconi, President and Chief Executive Officer. "During the quarter, we made significant progress in our Phase 3 clinical program, notably with the special protocol assessment received from the Food and Drug Administration (FDA). In addition, we worked diligently in order to lay the groundwork for the second Phase 3 which is slated to begin in early 2007. These efforts and our sound financial position should enable us to achieve our objectives for the year," he added.

Recent highlights:

Results of 1st Phase 3 study expected towards end of 2006

The first 26 weeks of the Phase 3 pivotal trial on TH9507 will soon be completed and top line results are expected around the end of 2006. Overall, 412 patients were enrolled in the study which is being conducted in the United States and Canada. To date, 269 patients have completed 26 weeks of treatment.

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 timeline for the first study and the nature of its results, as well as their effects on the execution of the second study. 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 and 17 of the 2005 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.

Significant progress in clinical program for TH9507:

Special protocol assessment (SPA)

In August, the Company received a Special Protocol Assessment (SPA) from the U. S. Food and Drug Administration (FDA) in relation to the design of its second pivotal Phase 3 trial evaluating TH9507 and its conformity with US regulatory requirements. The Company was also able to reconfirm the study's primary end point as an 8% reduction in visceral adipose tissue (VAT) and obtained the FDA's approval of the statistical analysis approach that will be used to measure the change in VAT.

Data and Safety Monitoring Board review

In July, an independent Data and Safety Monitoring Board (DSMB) recommended that the Company's ongoing Phase 3 study on TH9507 be continued as currently being conducted, based on a review of the clinical data on 181 patients who had completed 13 weeks of treatment. The DSMB is comprised of independent medical experts and is responsible for monitoring the safety aspects of the Phase 3 clinical study.

Preparations for 2nd Phase 3 on track

The second Phase 3 study will begin once the first Phase 3 is completed. The second study will be carried out with approximately 400 patients in North America and Europe. The purpose of the second study is to confirm the results of the first study and is designed much the same way.

Sound liquidity position

Theratechnologies has maintained a sound liquidity position with $43 million at the end of the third quarter.

MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THIRD QUARTER

Revenues

Consolidated revenues for the three-month period ended August 31, 2006 amounted to $412,000, compared to $409,000 in 2005. Consolidated revenues for the nine-month period ended August 31, 2006, were $1,282,000, compared to $16,142,000 for the same period in 2005. Revenues for the quarter and for the first nine months of the current year are mainly composed of interest from investments. The exceptionally high revenues in 2005 included an amount of $14,640,000 received during the first quarter for terminating three co-development projects with ALZA Corporation.

R&D activities

Consolidated research and development (R&D) expenditures, before tax credits, totalled $6,440,000 for the third quarter of 2006, compared to $3,855,000 in 2005. For the nine-month period ended August 31, 2006, R&D expenses were $16,086,000, compared to $10,321,000 for the same period in 2005. The increase in R&D spending in 2006 is related to the advancement of the first pivotal Phase 3 study for TH9507.

Other expenses

For the third quarter of 2006, general and administrative expenses, selling and market development expenses, patents and amortization of other assets (SG&A) were $1,459,000, compared to $1,805,000 for the same period in 2005. For the nine-month period ended August 31, 2006, the SG&A amounted to $4,735,000, compared to $5,926,000 for the same period in 2005. These reductions result firstly from measures initiated by the Company in 2006 to lower costs following a reorganization of its activities. Secondly, the Company recorded a write-off of $444,000 of certain patents costs and deferred development costs in 2005.

Net results

Reflecting the variations in revenues and expenses described above, the Company recorded a third-quarter operating loss (loss before proportionate share in loss of companies under significant influence and loss on investments in companies) of $7,251,000, compared to $5,065,000 for the same period in 2005. For the nine-month period ended August 31, 2006, the operating loss was $18,919,000, compared to operating earnings of $569,000 in 2005.

The net loss amounted to $7,251,000 for the third quarter of 2006, compared to $5,218,000 in 2005. For the nine-month period ended August 31, 2006, the net loss was $18,919,000, compared to $8,692,000 in 2005.

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. (See note 2 (A) in the notes to the consolidated financial statements of the 2005 Annual Report.)



2006
-------------------------------------------------------------
Q3 Q2 Q1
-------------------------------------------------------------
Revenues $412 $395 $475
Operating earnings (loss)(1) $(7,251) $(6,221) $(5,447)
Earnings (loss) from
continuing operations (2) $(7,251) $(6,221) $(5,447)
Net earnings (loss) $(7,251) $(6,221) $(5,447)
Basic and diluted
earnings (loss) per share:
Continuing activities (2) $(0.16) $(0.14) $(0.15)
Net earnings (loss) $(0.16) $(0.14) $(0.15)
-------------------------------------------------------------

2005 2004
----------------------------------------------------------------------
Q4 Q3 Q2 Q1 Q4
----------------------------------------------------------------------
Revenues $319 $409 $631 $15,102 $ 503
Operating earnings
(loss)(1) $(5,580) $(5,065) $(4,784) $10,418 $(4,655)
Earnings (loss) from
continuing
operations(2) $(5,651) $(5,218) $(12,745) $9,271 $(10,873)
Net earnings (loss) $(5,651) $(5,218) $(12,745) $9,271 $(10,873)
Basic and diluted
earnings (loss)
per share:
Continuing
activities(2) $(0.16) $(0.15) $(0.36) $0.26 $(0.31)
Net earnings (loss) $(0.16) $(0.15) $(0.36) $0.26 $(0.31)
---------------------------------------------------------------------

(1) Before restructuring costs, proportionate share in loss of a
company under significant influence, gains on investments in
companies and gains on dilution, discontinued operations and non-
controlling interest

(2) Net of non-controlling interest


Financial position

Theratechnologies maintained a sound financial position during the third quarter. At August 31, 2006, liquidities, which includes cash and cash equivalents as well as bonds, amounted to $41,410,000 and tax credits receivable amounted to $1,578,000, for a total of $42,988,000.

During the second quarter of 2006, the Company completed a financing for the sale and issuance of 11,192,500 common shares, with proceeds of $20,363,000 net of share issue costs.

For the three-month period ended August 31, 2006, the burn rate from operating activities, excluding changes in operating assets and liabilities, was $6,865,000, compared to $4,700,000 in 2005. For the nine-month period ended August 31, 2006, the burn rate amounted to $17,425,000, compared to cash generated from operating activities of $2,055,000 in 2005 (a burn rate of $12,585,000 excluding the transaction with ALZA Corporation). The increased burn rate in 2006 is the result of the higher R&D expenses described above.

Outstanding share data

On October 10, 2006, the number of shares issued and outstanding was 46,759,880, while outstanding options granted under the stock option plan were 2,590,166.

Contractual obligations

During the quarter, 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 2005 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 in Phase 3 clinical development in HIV-associated lipodystrophy. The Company also has other promising projects at various 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, is available on SEDAR at www.sedar.com.



THERATECHNOLOGIES INC.
Consolidated Balance Sheets
(Unaudited)

August 31, 2006, with comparative figures as at November 30, 2005
(in thousands of dollars)
-------------------------------------------------------------------
-------------------------------------------------------------------
August 31, November 30,
2006 2005
-------------------------------------------------------------------
(Audited)


Assets
Current assets:
Cash and cash equivalents $1,547 $1,087
Bonds 16,457 12,515
Accounts receivable 300 258
Tax credits receivable 1,578 978
Research supplies 2,264 1,929
Prepaid expenses 563 425
-------------------------------------------------------------------
22,709 17,192
Bonds 23,406 25,424
Investments in public companies (market
value:
$1,130 in 2006; $1,424 in 2005) 836 836
Property and equipment 1,700 2,072
Other assets (note 2) 8,162 8,121
-------------------------------------------------------------------
$56,813 $53,645
-------------------------------------------------------------------
-------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $5,638 $4,639

Shareholders' equity:
Capital stock (note 3) 177,509 155,659
Contributed surplus 3,287 2,587
Deficit (129,621) (109,240)
-------------------------------------------------------------------
51,175 49,006
-------------------------------------------------------------------
$56,813 $53,645
-------------------------------------------------------------------
-------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.



THERATECHNOLOGIES INC.
Consolidated Statements of Earnings (Unaudited)

Periods ended August 31, 2006 and 2005
(in thousands of dollars, except per share amounts)
---------------------------------------------------------------------
August 31, August 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(3 months) (9 months)

Revenues:
Royalties, technologies
and other (note 4) $5 $20 $187 $14,850
Interest 407 389 1,095 1,292
----------------------------------------------------------------------
412 409 1,282 16,142
Operating costs and
expenses:
Research and development 6,440 3,855 16,086 10,321
Tax credits (236) (186) (620) (674)
---------------------------------------------------------------------
6,204 3,669 15,466 9,647
General and
administrative 1,046 1,387 3,586 4,074
Selling and market
development 257 210 689 795
Patents and amortization
of other assets 156 208 460 1,057
---------------------------------------------------------------------
7,663 5,474 20,201 15,573
---------------------------------------------------------------------
Operating (loss) earnings
before undernoted item (7,251) (5,065) (18,919) 569
Proportionate share in
loss of companies under
significant influence -- (153) -- (6,602)
Loss on investments in
companies -- -- -- (2,659)
---------------------------------------------------------------------
Net loss $(7,251) $(5,218) $(18,919) $(8,692)
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic and diluted loss
per share (note 3 (C)) $(0.16) $(0.15) $(0.45) $(0.24)
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average number
of common shares
outstanding 46,759,88 35,549,019 42,182,786 35,529,213
---------------------------------------------------------------------
---------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.



THERATECHNOLOGIES INC.
Consolidated Statements of Deficit (Unaudited)

Periods ended August 31, 2006 and 2005
(in thousands of dollars)
---------------------------------------------------------------------
---------------------------------------------------------------------
August 31, August 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(3 months) (9 months)
Deficit, beginning
of period $(122,370) $(98,371) $(109,240) $(94,897)
Net loss (7,251) (5,218) (18,919) (8,692)
Share issue costs -- -- (1,462) --
---------------------------------------------------------------------
Deficit, end of
period $(129,621) $(103,589) $(129,621) $(103,589)
---------------------------------------------------------------------
---------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.



THERATECHNOLOGIES INC.
Consolidated Statements of Cash Flows
(Unaudited)
Periods ended August 31, 2006 and 2005
(in thousands of dollars)
---------------------------------------------------------------------
---------------------------------------------------------------------
August 31, August 31,
---------------------------------------------------------------------
2006 2005 2006 2005
---------------------------------------------------------------------
(3 months) (9 months)
---------------------------------------------------------------------

Cash flows from operating
activities:
Net loss $(7,251) $(5,218) $(18,919) $(8,692)
Adjustments for:
Depreciation of property
and equipment 150 156 443 431
Depreciation of other assets 126 119 351 802
Stock-based compensation 110 90 700 253
Proportionate share in loss
of companies under
significant influence -- 153 -- 6,602
Loss on investments in
companies and gains on
dilution -- -- -- 2,659
---------------------------------------------------------------------
(6,865) (4,700) (17,425) 2,055
Changes in operating assets
and liabilities:
Interest receivable on bonds 224 364 157 410
Accounts receivable (3) (44) (117) 6
Tax credits receivable (238) (186) (600) (678)
Research supplies 383 242 (576) (1,496)
Prepaid expenses 75 (101) (138) (496)
Accounts payable and
accrued liabilities 1,195 (447) 1,041 (1,157)
---------------------------------------------------------------------
1,636 (172) (233) (3,411)
---------------------------------------------------------------------
(5,229) (4,872) (17,658) (1,356)
Cash flows from financing
activities:
Share issuance -- -- 21,850 60
Share issue costs (135) -- (1,405) --
---------------------------------------------------------------------
(135) -- 20,445 60
Cash flows from investing
activities:
Addition to property
and equipment (16) (79) (161) (459)
Addition to other assets (51) (35) (165) (226)
Disposal of other assets -- -- 80 --
Acquisition of bonds -- (3,542) (16,082) (10,931)
Disposal of bonds 5,273 3,133 14,001 14,684
Sale of shares in a private
company, net amount -- 2,565 -- 2,561
---------------------------------------------------------------------
5,206 2,042 (2,327) 5,629
---------------------------------------------------------------------
Net change in cash and cash
equivalents (158) (2,830) 460 4,333
Cash and cash equivalents,
beginning of period 1,705 7,599 1,087 436
---------------------------------------------------------------------
Cash and cash equivalents,
end of period $1,547 $4,769 $1,547 $4,769
---------------------------------------------------------------------
---------------------------------------------------------------------
See note 6 (a) for supplemental cash flow information.

See accompanying notes to unaudited consolidated financial statements.


THERATECHNOLOGIES INC.

Notes to Consolidated Financial Statements (Unaudited)

Periods ended August 31, 2006 and 2005
(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. 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. Other assets:



-------------------------------------------------------------------
-------------------------------------------------------------------
August 31,
2006
-------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
-------------------------------------------------------------------
Intellectual property $7,670 $2,231 $5,439
Patent costs 1,694 847 847
Research supplies 1,801 -- 1,801
Long-term accounts receivable 75 -- 75
-------------------------------------------------------------------
$11,240 $3,078 $8,162
-------------------------------------------------------------------

-------------------------------------------------------------------
November 30,
2005
-------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
-------------------------------------------------------------------
Intellectual property $7,670 $1,941 $5,729
Patent costs 1,754 922 832
Research supplies 1,560 -- 1,560
Deferred development costs 70 70 --
-------------------------------------------------------------------
$11,054 $2,933 $8,121
-------------------------------------------------------------------


3. Capital stock:
--------------------------------------------------------------------
August 31, November 30,
2006 2005
--------------------------------------------------------------------
(Audited)
Authorized in unlimited number and without
par value:
Common shares
Preferred shares issuable in one or more series
Issued:
46,759,880 common shares (35,552,985 in
2005) $177,509 $155,659
--------------------------------------------------------------------
--------------------------------------------------------------------


During the second quarter of 2006, the Company concluded a public offering for the sale and issue of 11,192,500 common shares, including the over-allotment option, for cash proceeds of 21,825. The issuance costs amounted to $1,462.

During the second quarter of 2006, the Company also issued 14,395 common shares to employees for a cash consideration of $25, in connection with its share purchase plan.

(a) Share option plan:

Changes in outstanding options granted under the Company's stock option plan for the year ended November 30, 2005 and the nine-month period ended August 31, 2006 were as follows:



--------------------------------------------------------------------
--------------------------------------------------------------------
Weighted
average
Number exercise price
--------------------------------------------------------------------
Options as at November 30, 2004 (audited) 2,781,500 $7.28
Granted 535,000 1.59
Cancelled (1,015,836) 8.33
--------------------------------------------------------------------
Options as at November 30, 2005 (audited) 2,300,664 5.50
Granted 832,500 1.68
Cancelled (192,998) 6.80
--------------------------------------------------------------------
Options as at August 31, 2006 2,940,166 $4.33
--------------------------------------------------------------------
--------------------------------------------------------------------

In September 2006, 350,000 options at the exercise price of $4.60
expired.


(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:


-------------------------------------------------------------------
-------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------
Risk-free interest rate 4.08% 3.77%
Expected volatility 50% 51%
Expected average option life in years 6 6
Expected dividend yield Nil Nil
-------------------------------------------------------------------
-------------------------------------------------------------------


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 of nine months ended
August 31, 2006 and 2005:


Weighted
average
grant-date
Number fair value
-----------------------------------------------------------------
2006 832,500 $0.88
2005 415,000 0.97
-----------------------------------------------------------------
-----------------------------------------------------------------


(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 2,417,666 (2005 - 3,709,829) options and warrants would not have been considered in such computation since their exercise prices were higher than the average market price during the reporting periods of 2006 and 2005.

(d) Warrants:

During the third quarter of 2006, 1,080,000 warrants expired at the exercise price of $17.30. On August 31, 2006, no warrants were outstanding.


4. Royalties, technologies and other:

In December 2004, the Company signed an agreement to terminate three co-development projects using ALZA Corporation's Macroflux® transdermal technology. The Company retains the rights to develop its molecules with all other delivery systems and ALZA retains the commercialization rights to Macroflux® with other molecules. In this regard, the Company received a payment of $14,640 (US$12,000).

5. Segmented information:

In 2006, the Company is conducting its activities in one segment, therapeutic peptides. Pursuant to the sale of Celmed BioSciences Inc. on June 20, 2005, the Company no longer conducts activities in cellular therapy. Segmented information for 2005 is as follows:



Therapeutic Cellular Other
peptides therapy segments
--------------------------------------------------------------

Third quarter ended August 31, 2005

Revenues from external
customers $20 $-- $--
Loss from continuing
operations (5,065) -- (153)
Net loss (5,065) -- (153)
Total assets 57,849 -- 907

Nine-months ended August 31, 2005

Revenues from external
customers $14,830 $-- $--
Revenues from companies
under significant influence 20 -- --
Earnings (loss) from
continuing operations 569 (6,147) (455)
Net earnings (loss) 569 (6,147) (455)
Total assets 57,849 -- 907
--------------------------------------------------------------
--------------------------------------------------------------

Intersegment
adjustments and
eliminations Total
--------------------------------------------------------------
Third quarter ended August 31
Revenues from external customers $-- $20
Loss from continuing operations -- (5,218)
Net loss -- (5,218)
Total assets (509) 58,247
Nine-months ended August 31,
Revenues from external customers $-- $14,830
Revenues from companies
under significant influence -- 20
Earnings (loss) from
continuing operations (2,659) (8,692)
Net earnings (loss) (2,659) (8,692)
Total assets (509) 58,247
--------------------------------------------------------------
--------------------------------------------------------------


6. Supplemental information:

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


August 31, November 30,
2006 2005
-------------------------------------------------------------------
Additions to property and equipment and
other assets financed by accounts
payable and accrued liabilities $64 $163
Share issue costs financed by accounts
payable and
accrued liabilities 57 --
-------------------------------------------------------------------
-------------------------------------------------------------------


(b) General and administrative expenses include a gain on exchange of $110 for the nine-month period ended August 31, 2006 (a loss of $76 for the same period in 2005).

Contact Information

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