MONTREAL, CANADA--(Marketwire - October 12, 2010) - Theratechnologies (TSX: TH) today announced its financial results for the third quarter ended August 31, 2010. For reference, the Management’s Discussion and Analysis for the third quarter 2010 with the associated Financial Statements can be found at www.theratech.com/en/investor-relations/financial-reports-theratechnologies.php or at www.sedar.com.
Third quarter financial highlights included:
-- Consolidated revenues of $2,152,000 -- Burn rate of $2,629,000 and an adjusted burn rate of $4,340,000 -- Liquidity of $43,933,000 as at August 31, 2010
“Operating and financial results are in line with the objectives of the Company,” noted Mr. Luc Tanguay, Senior Executive Vice President & CFO of Theratechnologies. “With close to $44 million in liquidities and an adjusted burn rate 32% lower than the third quarter of 2009, we are in a good position to pursue our business plan,” Mr. Tanguay added.
Financial Highlights
For the three- and nine-month periods ending August 31, 2010:
-- Consolidated revenues amounted to $2,152,000 for the quarter and $6,673,000 for the nine-month period, compared to $13,148,000 and $17,474,000 for the corresponding periods in 2009. The higher revenues in 2009 are due to the receipt of a milestone payment of $10,884,000 in the third quarter of 2009 associated with the U.S. Food and Drug Administration (“FDA”) agreement to review the New Drug Application (“NDA”) for tesamorelin, pursuant to the collaboration and licensing agreement with EMD Serono, Inc. (“EMD Serono”). -- Research and development (“R&D”) expenses are significantly lower than those of the previous year, reflecting the completion of the tesamorelin Phase 3 clinical program in 2009. Before tax credits, R&D expenses totalled $2,930,000 for the quarter and $11,298,000 for the nine-month period, compared to $5,681,000 and $17,692,000 for the corresponding periods in 2009, representing decreases of 48% and 36% respectively. The R&D expenses incurred in the third quarter of 2010 are mainly related to the primary objective of the Company, which is to obtain the regulatory approval of tesamorelin for the treatment excess abdominal fat in HIV- infected patients with lipodystrophy in the United States. -- General and administrative expenses amounted to $2,225,000 for the quarter and $6,083,000 for the nine-month period, compared to $1,337,000 and $5,515,000 for the corresponding periods in 2009. The increase in general and administrative expenses is principally due to professional fees associated with the recruitment of the new President and Chief Executive Officer, a variation in stock-based compensation expense and foreign exchange rate fluctuations. The higher expenses in the nine- month period are principally due to heightened communication activities related to the FDA Advisory Committee meeting as well as an increase in other administrative expenses partially offset by a reduction in the loss on foreign exchange. The increase for the nine-month period is less, in relative terms, than that of the third quarter because of costs associated with revising the Company’s business plan incurred in early 2009. -- Selling and market development expenses amounted to $521,000 for the quarter and $1,901,000 for the nine-month period compared to $495,000 and $1,516,000 for the corresponding periods in 2009. The increase in the selling and market development expenses is principally due to business development and market research studies for territories outside the United States. These expenses also include activities associated with the management of the collaboration and licensing agreement with EMD Serono. -- Net loss recorded by the Company was $3,277,000, representing $0.05 per share for the quarter and $12,367,000 representing $0.20 per share for the nine-month period compared to net earnings of $5,824,000 representing $0.10 per share and a net loss of $10,360,000 representing $0.17 per share for the corresponding periods in 2009. The profit recorded in the third quarter of 2009 was due to the receipt of a milestone payment of $10,884,000 associated with the FDA’s agreement to review the NDA for tesamorelin, pursuant to the collaboration and licensing agreement with EMD Serono. -- Financial Position -- At August 31, 2010, liquidities, which include cash and bonds, amounted to $43,419,000, and tax credits receivable amounted to $514,000, for a total of $43,933,000. -- The burn rate from operating activities, excluding changes in operating assets and liabilities, was $2,629,000 in the quarter and $10,877,000 for the nine-month period compared to a cash flow of $6,186,000 and a burn rate of $9,214,000 for the corresponding periods in 2009. Excluding the revenues and fees associated with the agreement with EMD Serono, the adjusted burn rate from operating activities, excluding changes in operating assets and liabilities, was $4,340,000 in the quarter and $16,011,000 for the nine-month period compared to $6,410,000 and $20,678,000 for the corresponding periods in 2009. -- In light of a lower expense level and cost control measures, the Company anticipates that the adjusted burn rate for 2010 will be between $22,000,000 and $23,000,000, and thus will be less than the initially forecasted adjusted burn rate of $24,000,000.
Non-GAAP Measures
The Company uses measures that do not conform to Canadian 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. Please refer to the Management’s Discussion and Analysis for the three- and nine-month periods ended August 31, 2010 for more details on how these non-GAAP measures are calculated.
About Theratechnologies
Theratechnologies (TSX: TH) is a Canadian biopharmaceutical company that discovers and develops innovative therapeutic products, with an emphasis on peptides, for commercialization. The Company targets unmet medical needs in specialty markets where it can retain all or part of the commercial rights to its products. Its most advanced compound, tesamorelin, is an analogue of the human growth hormone releasing factor. In 2009, Theratechnologies submitted a New Drug Application (“NDA”) to the U.S. Food and Drug Administration (“FDA”), seeking approval of tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy. The Company’s growth strategy is centered on the commercialization of tesamorelin in the United States through an agreement with EMD Serono, Inc. for HIV-associated lipodystrophy. Moreover, Theratechnologies’ growth strategy will also derive from the commercialization of tesamorelin in other markets for HIV-associated lipodystrophy, as well as from the development of clinical programs for tesamorelin in other medical conditions.
Additional Information about Theratechnologies
Further information about Theratechnologies is available on the Company’s website at www.theratech.com. Additional information, including the Annual Information Form and the Annual Report, is also available on SEDAR at www.sedar.com.
Forward-Looking Information
This press release contains certain statements that are considered “forward-looking information” within the meaning of applicable securities legislation. This forward-looking information includes, but is not limited to, information regarding the potential decrease in the adjusted burn rate for 2010, the growth strategy of the Company by way of the commercialization of tesamorelin in the U.S. market as well as in other markets, and the development of tesamorelin for the treatment of other medical conditions. Furthermore, the words “will”, “may”, “could”, “should”, “outlook”, “believe”, “plan”, “envisage”, “anticipate”, “expect” and “estimate”, or variations of them denote forward-looking information.
Forward-looking information is based upon a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Company’s control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, the risk that unexpected expenses increase the adjusted burn rate, that the FDA does not approve tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy, that the Company is unable to commercialize tesamorelin in other markets because, among other reasons, the non-approval of tesamorelin in those markets or the non-acceptance of the product in those markets, and that the results of clinical studies for the development of tesamorelin for the treatment of other medical conditions are inconclusive, resulting in the termination of these studies.
Although the forward-looking information contained herein is based upon what the Company believes are reasonable assumptions, investors are cautioned against placing undue reliance on this information since actual results may vary from the forward-looking information. Certain assumptions made in preparing the forward-looking information and the Company’s objectives include the assumption, among others, that the FDA and regulatory agencies in other countries will approve tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy, sales of tesamorelin in the United States and in other markets will be successful, and that the results of clinical studies for the development of tesamorelin for the treatment of other medical conditions will be conclusive.
Consequently, all of the forward-looking information is qualified by the foregoing cautionary statements and there can be no guarantee that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences or effects on the Company, its business, its financial condition or its results of operations. Furthermore, the forward-looking information reflects current expectations regarding future events only as of the date of release of this press release.
Investors are referred to the Company’s public filings available at www.sedar.com. In particular, further details on these risks and descriptions of these risks are disclosed in the “Risks and Uncertainties” section of the Company’s Annual Information Form, dated February 23, 2010, for the year ended November 30, 2009.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED AUGUST 31, 2010
The following Management’s Discussion and Analysis (“MD&A”) provides Management’s point of view on the financial position and the results of operations of Theratechnologies Inc. (“Theratechnologies” or the “Company”), for the three-month and nine-month periods ended August 31, 2010, as compared to the three-month and nine-month periods ended August 31, 2009. This view contains information that the Company believes may affect its prospective financial condition, cash flows and results of operations. The unaudited interim consolidated financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”). This MD&A should be read in conjunction with the unaudited interim consolidated financial statements of the Company and the notes thereto as at August 31, 2010, as well as the MD&A and audited consolidated financial statements including the related notes thereto as at November 30, 2009. Unless specified otherwise, all amounts are in Canadian dollars.
Financial Overview
Theratechnologies (TSX: TH) is a Canadian biopharmaceutical company that discovers and develops innovative therapeutic products, with an emphasis on peptides, for commercialization. The Company targets unmet medical needs in specialty markets where it can retain all or some of the commercial rights to its products. Its most advanced compound, tesamorelin, is an analogue of the human growth hormone releasing factor.
The Company’s growth strategy is centered upon the development of tesamorelin. In late 2008, Theratechnologies entered into a collaboration and licensing agreement with EMD Serono, Inc. (“EMD Serono”), an affiliate of Merck KGaA, Darmstadt, Germany, for the exclusive commercialization rights to tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy in the United States. The principal strategic objective of Theratechnologies is to obtain regulatory approval for tesamorelin in the United States in this indication and good progress was made by participating in the U.S. Food and Drug Administration (“FDA” or the “Agency”) Endocrinologic and Metabolic Drugs Advisory Committee. On May 27, 2010, the Committee recommended by a 16 to 0 unanimous vote that tesamorelin be granted marketing approval by the FDA for this indication. Although advisory committees provide their recommendations, the decision on marketing approval is made by the Agency. Theratechnologies expects a final decision from the Agency on the approval of tesamorelin in the United States during the fourth quarter 2010. Should tesamorelin be approved, the Company expects to receive regulatory milestone payments, royalties and additional milestone payments from sales of tesamorelin by EMD Serono in the United States.
Concurrent with advancing the regulatory process, Theratechnologies has begun building inventory in preparation for the launch of tesamorelin in the United States by EMD Serono, upon its approval by the FDA. In the coming months, the Company will continue building inventory.
In light of a lower expense level and cost control measures, the Company anticipates that the adjusted burn rate for 2010 will be between $22,000,000 and $23,000,000, and thus will be less than the initially forecasted adjusted burn rate of $24,000,000.
Revenues
Consolidated revenues for the three-month period ended August 31, 2010, amounted to $2,152,000, compared to $13,148,000 for 2009. For the nine-month period ended August 31, 2010, consolidated revenues were $6,673,000, compared to $17,474,000 for the same period in 2009. The higher revenues in 2009 are due to the receipt in the third quarter of a milestone payment of $10,884,000 associated with the FDA’s agreement to review the New Drug Application (“NDA”) for tesamorelin, pursuant to the collaboration and licensing agreement with EMD Serono.
The initial payment received upon the closing of the agreement with EMD Serono of $27,097,000 has been deferred and is being amortized over its estimated service period on a straight-line basis. This period may be modified in the future based on additional information. For the three-month period ended August 31, 2010, an amount of $1,711,000 ($1,712,000 for the same period in 2009) was recognized as revenue related to this transaction, while an amount of $5,134,000 was recognized as revenue related to this transaction for the nine-month period ($ 4,849,000 for the same period in 2009). At August 31, 2010, the deferred revenues related to this transaction recorded on the balance sheet amounted to $15,403,000.
R&D Activities
Research and development (“R&D”) expenses, before tax credits, totaled $2,930,000 for the third quarter of 2010, compared to $5,681,000 in 2009. For the nine-month period ended August 31, 2010, R&D expenses were $11,298,000 compared to $17,692,000 for the same period in 2009, a decrease of 36.1%. The R&D expenses incurred in the third quarter of 2010 are mainly related to the pursuit of the regulatory filing for tesamorelin with the FDA. The expenses incurred in the third quarter of 2009, in addition to expenses related to the pursuit of the regulatory filing described above, included a non-recurring charge of $1,395,000 related to a write-down of research supplies produced in order to obtain stability data and to validate the manufacturing process for commercial purposes, as required by the FDA. The expenses incurred in the nine-month period ended August 31, 2009, also included costs associated with completing the Phase 3 clinical trials evaluating tesamorelin in HIV-associated lipodystrophy.
Other Expenses
For the third quarter of 2010, general and administrative expenses amounted to $2,225,000, compared to $1,337,000 for the same period in 2009. For the nine-month period ended August 31, 2010, general and administrative expenses amounted to $6,083,000, compared to $5,515,000 for the same period in 2009. The higher expenses in the third quarter of 2010 are principally due to professional fees associated with the recruitment of the new President and Chief Executive Officer, variations in stock-based compensation expenses, and foreign exchange rate fluctuations. The higher expenses in the nine-month period are principally due to heightened communication activities related to the FDA Advisory Committee meeting as well as an increase in other administrative expenses partially offset by a reduction in the loss on foreign exchange. The expenses for the nine-month period ending August 31, 2009, include the costs associated with revising the Company’s business plan.
For the third quarter of 2010, the cost of sales, an amount related to the production of tesamorelin, totaled $120,000. There were no costs related to the production of tesamorelin for the corresponding period in 2009.
Selling and market development expenses amounted to $521,000 for the third quarter of 2010, compared to $495,000 for the same period in 2009. For the nine-month period ended August 31, 2010, selling and market development expenses amounted to $1,901,000, compared to $1,516,000 for the same period in 2009. The increase in the selling and market development expenses is principally due to business development and market research studies for countries other than the United States. These expenses also include activities associated with the management of the agreement with EMD Serono.
Net Results
Taking into account the revenues and expenses described above, the Company recorded a third quarter net loss of $3,277,000, representing $0.05 per share, compared to a net earning of $5,824,000, representing $0.10 per share for the same period in 2009. For the nine-month period ended August 31, 2010, the net loss was $12,367,000, representing $0.20 per share, compared to a net loss of $10,360,000, representing $0.17 per share for the same period in 2009.
The net loss in the third quarter of 2010 includes revenue of $1,711,000 related to the agreement with EMD Serono. Excluding this item, the adjusted net loss amounted to $4,988,000 in 2010, a decrease of 26.3% compared to the same period in 2009. For the nine-month period, the net loss includes revenue and costs related to the agreement with EMD Serono. Excluding those items, the adjusted net loss amounted to $17,501,000, compared to $21,824,000 for the same period in 2009, a decrease of 19.8%.
Financial Position
At August 31, 2010, liquidities, which include cash and bonds, amounted to $43,419,000, and tax credits receivable amounted to $514,000, for a total of $43,933,000.
Taking into account the revenues and expenses described above, for the three-month period ended August 31, 2010, the burn rate from operating activities, excluding changes in operating assets and liabilities, was $2,629,000, compared to a cash flow of $6,186,000 in 2009. Excluding the revenue and costs related to the agreement with EMD Serono, the adjusted burn rate from operating activities, excluding changes in operating assets and liabilities, was $4,340,000 for the quarter ended August 31, 2010, compared to $6,410,000 for the third quarter of 2009, a decrease of 32.3%.
For the nine-month period ending August 31, 2010, the burn rate from operating activities, excluding changes in operating assets and liabilities, was $10,877,000 compared to $9,214,000 for the same period in 2009. Excluding the revenue and costs associated with the agreement with EMD Serono, the adjusted burn rate from operating activities, excluding changes in operating assets and liabilities, was $16,011,000, compared to $20,678,000 for the corresponding period in 2009, representing a decrease of 22.6%.
Quarterly Financial Information
The selected financial information provided below is derived from the Company’s unaudited quarterly financial statements for each of the last eight quarters. This information has been restated following the adoption of the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3064, Goodwill and Intangible Assets.
(in thousands of Canadian dollars, except per share amounts)
2010 ------------------------------------------------------------------ Q3 Q2 Q1 ------------------------------------------------------------------ Revenues $2,152 $2,226 $2,295 Net (loss) earnings $(3,277) $(4,823) $(4,267) Basic and diluted (loss) earnings per share $(0.05) $(0.08) $(0.07) ------------------------------------------------------------------ ------------------------------------------------------------------ 2009 2008 -------------------------------------------------------------------------- Q4 Q3 Q2 Q1 Q4 -------------------------------------------------------------------------- Revenues $2,246 $13,148 $2,317 $2,009 $616 Net (loss) earnings $(4,698) $5,824 $(5,430) $(10,754) $(15,145) Basic and diluted (loss) earnings per share $(0.08) $0.10 $(0.09) $(0.18) $(0.26) -------------------------------------------------------------------------- --------------------------------------------------------------------------
As described above, the increased revenues in 2010 and 2009 are related to the amortization of the initial payment received at the closing of the agreement with EMD Serono, as well as the milestone payment of $10,884,000 recorded in August 2009. The increase in the fourth quarter net loss in 2008 is due to impairment charges for intellectual property.
Non-GAAP Measures
The Company uses measures that do not conform to Canadian 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 the impact of revenues and costs associated with the collaboration and licensing agreement with EMD Serono, Management uses adjusted net loss and adjusted burn rate from operating activities before changes in operating assets and liabilities. These items are excluded because they affect the comparability of the financial results and could potentially distort the analysis of trends in the Company’s operating performance. The exclusion of these items does not necessarily indicate that they are non-recurring.
(in thousands of Canadian dollars)
August 31st August 31st (3 months) (9 months) Adjusted net loss 2010 2009 2010 2009 (Net loss) net earnings per the financial statements $(3,277) $5,824 $(12,367) $(10,360) Adjustments: Revenue associated with a collaboration and licensing agreement (note 7 to the consolidated financial statements) (1,711) (12,596) (5,134) (15,733) Costs associated with collaboration and licensing agreement - - - 4,269 ------------------------------------------------ Adjusted net loss $(4,988) $(6,772) $(17,501) $(21,824) ------------------------------------------------ August 31st August 31st (3 months) (9 months) Adjusted burn rate before changes in operating assets and liabilities 2010 2009 2010 2009 (Burn rate) cash flow before changes in operating assets and liabilities, per the financial statements $(2,629) $6,186 $(10,877) $(9,214) Adjustments: Revenue associated with a collaboration and licensing agreement (note 7 to the consolidated financial statements) (1,711) (12,596) (5,134) (15,733) Costs associated with collaboration and licensing agreement - - - 4,269 ------------------------------------------------- Adjusted burn rate before changes in operating assets and liabilities $(4,340) $(6,410) $(16,011) $(20,678) -------------------------------------------------
Contingency
On July 26, 2010, the Company received a motion of authorization to institute a class action against the Company and certain of its executive officers (the “Motion”). The Motion was filed in the Superior Court of Quebec, district of Montreal. The applicant is seeking to initiate a class action suit to represent the class of persons who were shareholders at May 21, 2010 and who sold their common shares of the Company on May 25 or 26, 2010. This applicant alleges that the Company did not comply with its continuous disclosure obligations as a reporting issuer by failing to disclose a material change. The Company is of the view that the allegations contained in the motion are entirely without merit and intends to take all appropriate actions to vigorously defend its position. As of October 11, 2010, the motion has not yet been heard by the Superior Court of Quebec.
New Accounting Policies
In February 2008, the Accounting Standards Board of Canada (“AcSB”) announced that accounting standards in Canada, as used by public companies, will converge with International Financial Reporting Standards (“IFRS”), for financial periods beginning on and after January 1, 2011 with the option to early adopt IFRS upon receipt of approval from the Canadian Securities regulatory authorities.
The Company’s mandatory changeover from current Canadian GAAP to IFRS applies to the fiscal year beginning December 1, 2011. However, the Company plans to file an exemption with the Canadian securities regulatory authorities to early adopt IFRS beginning December 1, 2009, the change over date. The Company intends to file its November 30, 2010 financial statements under IFRS with December 1, 2008 being the proposed transition date. Should the exemption be granted, the comparative annual period for fiscal 2009 will be restated under IFRS as will all quarterly filings for 2009 and 2010. The following discussion provides further information about the Company’s IFRS convergence activities.
Management of IFRS Convergence Project
Management has evaluated its overall readiness for transition from GAAP to IFRS, including the readiness of its staff, Board of Directors and Audit Committee and has determined that the Company is adequately prepared for the conversion to IFRS.
The Company has established a formal project plan and a detailed timetable to manage the transition. It has also allocated substantial internal resources and is working with its auditors to ensure a timely and accurate conversion. The conversion project is being monitored by senior members of the finance team which report regularly to the Audit Committee and the Board of Directors on the progress of the convergence project through meetings and communication. The Company is currently on schedule with its plan.
Conversion Plan
The Company’s IFRS convergence project includes four steps: diagnostic and planning, detailed analysis, design, and implementation, which in certain cases will occur concurrently as IFRS is applied to specific areas.
Phase One: Diagnostic and Planning - This phase involves establishing a transition plan to IFRS and the initial identification of differences between Canadian GAAP and IFRS.
Phase Two: Detailed Analysis - This phase involves a comprehensive assessment of the differences between the Company’s current accounting
