F-10
As filed with the Securities and Exchange Commission on February 22, 2011
Registration Statement No. 333-
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-10
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
THERATECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
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Québec, Canada
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2834
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NOT APPLICABLE |
(Province or other jurisdiction
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(Primary Standard Industrial
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(I.R.S. Employer |
of company or organization)
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Classification Code Number)
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Identification Number) |
2310 Alfred-Nobel Boulevard
Montréal, Québec, Canada
H4S 2B4
(514) 336-7800
(Address and telephone number of Registrants principal executive offices)
CT Corporation System
111 8th Avenue
New York, NY 10011
(212) 894-8800
(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)
Copies to:
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Jocelyn Lafond
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Lawrence S. Wittenberg
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Frédéric Boucher
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Theratechnologies Inc.
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Martin C. Glass
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Fasken Martineau Dumoulin LLP
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2310 Alfred-Nobel Boulevard
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Goodwin Procter LLP
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Stock Exchange Tower
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Montréal, Québec, Canada H4S 2B4
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Exchange Place
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Suite 3400, P.O. Box 242
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Telephone: (514) 336-7800
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Boston, MA 02109
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800 Place Victoria
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Facsimile: (514) 336-7242
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Telephone: (617) 570-1000
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Montréal, Québec, Canada H4Z 1E9
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Facsimile: (617) 523-1231
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Telephone: (514) 397-7400
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Facsimile: (514) 397-7600 |
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James Lurie
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Vitale Santoro
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Osler, Hoskin & Harcourt LLP
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Osler, Hoskin & Harcourt LLP
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620 Eighth Avenue
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1000 De La Gauchetière Street W.
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New York, NY 10018
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Suite 2100
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Telephone: (212) 867-5800
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Montréal, Québec, Canada H3B 4W5
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Facsimile: (212) 867-5802
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Telephone: (514) 904-8100
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Facsimile: (514) 904-8101
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Approximate date of commencement of proposed sale of the securities to the public:
As soon as practicable after the effective date of this Registration Statement.
Province of Québec, Canada
(Principal jurisdiction regulating this offering)
It is proposed that this filing shall become effective (check appropriate box):
A.o |
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upon filing with the Commission, pursuant to Rule 467(a) (if in connection with an
offering being made contemporaneously in the United States and Canada). |
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at some future date (check the appropriate box below): |
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pursuant to Rule 467(b) on (date) at (time) (designate a time not sooner than 7
calendar days after filing). |
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pursuant to Rule 467(b) on (date) at (time) (designate a time 7 calendar
days or sooner after filing) because the securities regulatory authority in the review
jurisdiction has issued a receipt or notification of clearance on (date). |
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pursuant to Rule 467(b) as soon as practicable after notification
of the Commission by the Registrant or the Canadian securities regulatory authority of the
review jurisdiction that a receipt or notification of clearance has been issued with
respect hereto. |
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4. þ |
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after the filing of the next amendment to this Form (if preliminary material is
being filed). |
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to the home jurisdictions shelf prospectus offering procedures, check
the following box. o
CALCULATION OF REGISTRATION FEE
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Title of each |
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Proposed maximum |
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Proposed maximum |
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class of securities |
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Amount to be |
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offering price |
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aggregate offering |
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Amount of |
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to be registered |
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Registered(1) |
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per share(2) |
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price(1)(2) |
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registration fee |
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Common Shares |
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12,650,000 |
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US$ |
5.23 |
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US$ |
66,159,500 |
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US$ |
7,681.12 |
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(1) |
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Includes 1,650,000 common shares that the underwriters have the option to purchase to cover over-allotments, if any, as well as associated common share purchase rights. |
(2) |
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Estimated solely for the purpose of calculating the amount of the registration fee pursuant to
Rule 457 of the Securities Act of 1933, based on the average of the high and low prices of the Registrants
common shares on the Toronto Stock Exchange on February 18, 2011 converted into U.S. dollars at the
U.S.-Canadian dollar exchange rate of U.S.$1.00 = C$1.0142 on February 18, 2011. |
The Registrant hereby amends this registration statement on such date or dates as may be
necessary to delay its effective date until the registration statement shall become effective as
provided in Rule 467 under the Securities Act of 1933 or on such date as the Commission, acting
pursuant to Section 8(a) of the Act, may determine.
PART I
INFORMATION REQUIRED TO BE DELIVERED
TO OFFEREES OR PURCHASERS
Information
contained herein is subject to completion or amendment. A
registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
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SUBJECT
TO COMPLETION, DATED FEBRUARY 22, 2011
PRELIMINARY PROSPECTUS
11,000,000 Shares
THERATECHNOLOGIES
INC.
Common Shares
We are offering 11,000,000 common shares. This is the initial
public offering of our common shares in the United States.
Our common shares are listed on the Toronto Stock Exchange under
the symbol TH. We have applied to have our common
shares listed on the Nasdaq Global Market under the symbol
THER. On February 18, 2011, the closing price
of our common shares on the Toronto Stock Exchange was Cdn$5.01
per share or U.S. $5.08, based on the
U.S.-Canadian
dollar closing exchange rate on February 18, 2011, as
quoted by the Bank of Canada.
Investing in our common shares involves a high degree of
risk. Please read Risk Factors beginning on
page 7 of this prospectus.
This offering is made by a foreign issuer that is permitted,
under a multijurisdictional disclosure system adopted by the
United States, to prepare this prospectus in accordance with the
disclosure requirements of Canada. Prospective investors should
be aware that such requirements are different from those of the
United States. Financial statements included or incorporated
herein been prepared in accordance with International Financial
Reporting Standards, and are subject to foreign auditing and
auditor independence standards, and thus may not be comparable
to financial statements of United States companies.
Prospective investors should be aware that the acquisition of
the securities described herein may have tax consequences both
in the United States and in Canada. Such consequences for
investors who are resident in, or citizens of, the United States
may not be described fully herein.
The enforcement by investors of civil liabilities under the
federal securities laws may be affected adversely by the fact
that we are incorporated under the laws of the Province of
Québec, that most of our officers and directors are
residents of Canada, that some of the underwriters and experts
named in the registration statement are residents of a foreign
country, and that all or a substantial portion of our assets and
those of said persons are located outside the United States.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PER SHARE
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TOTAL
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Public Offering Price
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U.S.$
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U.S.$
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Underwriting Discounts and Commissions
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U.S.$
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U.S.$
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Proceeds to Company before expenses
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U.S.$
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U.S.$
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Delivery of the common shares is expected to be made on or
about ,
2011. We have granted the underwriters an option to purchase for
a period of 30 days following the date of the prospectus,
on the same terms and conditions set forth above, up to an
additional common shares. If the underwriters exercise the
option in full, the total underwriting discounts and commissions
payable by us will be $ , and the
total proceeds to us, before expenses, will be
$ .
Joint Book-Running
Managers
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Jefferies
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Stifel Nicolaus Weisel
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RBC Capital Markets
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BMO Capital Markets
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Co-Managers
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Desjardins
Securities International Inc |
NBF Securities (USA)
Corp |
Prospectus
dated ,
2011
TABLE OF
CONTENTS
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ii
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iii
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F-1
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ABOUT THIS
PROSPECTUS
You should rely only on the information contained in or
incorporated by reference into this prospectus or in any free
writing prospectus that we may provide to you. Neither we nor
the underwriters have authorized anyone to provide you with
information different from that contained in this prospectus or
in any free writing prospectus that we may provide to you. We
are offering to sell, and seeking offers to buy, our common
shares only in jurisdictions where, and to persons to whom,
offers and sales are lawfully permitted. The information
contained in or incorporated by reference into this prospectus
is accurate only as of the date of this prospectus or the date
of the document incorporated by reference, as applicable,
regardless of the time of delivery of this prospectus or of any
sale of our common shares.
We obtained the industry, market and competitive position data
in this prospectus from our own internal estimates and research
as well as from industry and general publications and research
surveys and studies conducted by third parties. Certain
statistical data and other information regarding the size of our
potential markets are based on industry publications
and/or
derived from our own internal analysis of such industry
publications. While we believe our internal company research and
internal analysis are reliable and the market definitions,
methodology and hypotheses we use are appropriate, such
research, analysis, methodology or definitions have not been
verified by an independent source. We cannot and do not provide
any assurance as to the accuracy or completeness of such
information. Market forecasts, in particular, are likely to be
inaccurate, especially over long periods of time.
In this prospectus, references to
EGRIFTAtm
refer to tesamorelin for the reduction of excess abdominal fat
in
HIV-infected
patients with lipodystrophy regardless of the trade name used
for such product in any particular territory.
EGRIFTAtm
is the trade name used in the United States for tesamorelin for
the reduction of excess abdominal fat in HIV-infected patients
with lipodystrophy.
EGRIFTAtm
is our trademark.
All monetary amounts set forth in this prospectus are expressed
in Canadian dollars, except where otherwise indicated.
References to $ and C$ are to Canadian
dollars and references to US$ are to
U.S. dollars.
In this prospectus, references to Theratechnologies,
the Company, we, our and
us refer to Theratechnologies Inc. and its
subsidiaries, unless the context otherwise states.
ii
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, and the documents incorporated by reference in
this prospectus and any prospectus supplement, contains
forward-looking statements and
forward-looking
information within the meaning of applicable securities laws
that are based on our managements belief and assumptions
and on information currently available to our management,
collectively,
forward-looking
statements. In some cases, you can identify
forward-looking statements by terms such as may,
will, should, could,
would, expect, plan,
anticipate, believe,
estimate, project, predict,
intend, potential, continue
and similar expressions intended to identify forward-looking
statements. Although we believe that the expectations reflected
in these forward-looking statements are reasonable, these
statements relate to future events or our future performance,
and involve known and unknown risks, uncertainties and other
factors that may cause our actual results, levels of activity,
performance or achievements to be materially different from any
future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements.
Forward-looking statements in this prospectus include, but are
not limited to, statements about:
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our expectations related to the use of proceeds from this
offering;
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our ability, and the ability of our commercial partners, to
commercialize
EGRIFTAtm
in the United States and other territories;
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whether we will receive regulatory approvals for tesamorelin
from regulatory agencies in territories other than the United
States in which we wish to expand the commercialization of
tesamorelin, and the timing and costs of obtaining such
regulatory approvals;
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our recognition of milestones, royalties and other revenues from
our commercial partners related to future sales of
EGRIFTAtm;
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our plans to conduct a new clinical program for tesamorelin in
muscle wasting in chronic obstructive pulmonary disease, or
COPD, including the timing and results of these clinical
programs;
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the continuation of our collaborations and other significant
agreements with our existing commercial partners and our ability
to establish and maintain additional development collaborations;
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our estimates of the size of the potential markets for
EGRIFTAtm,
tesamorelin and our other product candidates;
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the rate and degree of market acceptance of
EGRIFTAtm
and our other product candidates;
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our success in obtaining, and the timing and amount of,
reimbursement for
EGRIFTAtm
and our other product candidates;
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the benefits of tesamorelin and our other product candidates as
compared to others;
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the success and pricing of other competing drugs or therapies
that are or may become available;
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our ability to maintain and establish intellectual property
rights in tesamorelin and our other product candidates;
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the manufacturing capacity of third-party manufacturers,
including the manufacturer of tesamorelin in commercial
quantities;
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our expectations regarding our financial performance, including
revenues, expenses, gross margins, liquidity, capital
expenditures and income taxes; and
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our need for additional financing and our estimates regarding
our capital requirements and future revenues and profitability.
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Such statements reflect our current views with respect to future
events and are subject to certain risks, uncertainties and
assumptions which may cause our actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed in or implied by the
forward-looking statements. Certain assumptions made in
preparing the forward-looking statements include that:
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tesamorelin for the reduction of excess abdominal fat in
HIV-infected patients with lipodystrophy will receive approval
in territories other than the United States covered in our
commercialization agreements;
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no additional clinical studies will be required to obtain said
regulatory approval of tesamorelin;
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EGRIFTAtm
will be accepted by the marketplace in the United States and
will be on the list of reimbursed drugs by third-party payors;
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our relations with third-party suppliers of
EGRIFTAtm
will be conflict-free and that such third-party suppliers will
have the capacity to manufacture and supply
EGRIFTAtm
to meet market demand and on a timely basis;
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we will obtain positive results from our clinical program for
the development of tesamorelin for muscle wasting in COPD
patients; and
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our business plan will not be substantially modified.
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Forward-looking statements reflect our current views with
respect to future events and are based on assumptions and
subject to risks and uncertainties. Given these risks and
uncertainties, the forward-looking events and circumstances
discussed in this prospectus may not occur, and you should not
place undue reliance on these forward-looking statements. We
discuss many of these risks in greater detail under the heading
Risk Factors as well as in the documents
incorporated by reference herein and therein. Also, these
forward-looking statements represent our estimates and
assumptions only as of the date of this prospectus. We undertake
no obligation and do not intend to update or revise these
forward-looking statements, unless required by law. We qualify
all of the information presented in this prospectus, and
particularly our forward-looking statements, with these
cautionary statements.
This prospectus also contains estimates and other statistical
data made by independent parties and by us relating to market
size and growth and other data about our industry and target
indications. This data involves a number of assumptions and
limitations, and you are cautioned not to give undue weight to
such estimates. In addition, projections, assumptions and
estimates of our future performance and the future performance
of the markets in which we operate are necessarily subject to a
high degree of uncertainty and risk.
iv
PROSPECTUS
SUMMARY
The following summary highlights selected information
contained elsewhere in this prospectus or in the documents
incorporated by reference into this prospectus. This summary
does not contain all of the information that you should consider
before making a decision to invest in our common shares. You
should carefully read the entire prospectus, including the
section entitled Risk Factors and the documents and
consolidated financial statements included or incorporated by
reference into this prospectus.
Our
Business
We are a specialty pharmaceutical company that discovers and
develops innovative therapeutic peptide products with an
emphasis on growth-hormone releasing factor, or GRF, peptides.
Our strategy is to leverage our expertise in the field of
metabolism and GRF peptides to address serious health disorders
while remaining actively involved in the commercialization of
our future products. Our first product,
EGRIFTAtm
(tesamorelin for injection), was approved by the United States
Food and Drug Administration, or FDA, in November 2010 and
launched in January 2011.
EGRIFTAtm
is currently the only approved therapy for the reduction of
excess abdominal fat in HIV-infected patients with lipodystrophy.
The
Condition
Excess abdominal fat in HIV-infected patients with lipodystrophy
is a serious medical condition. We estimate that it affects
approximately 29% of HIV-infected patients treated with
antiretroviral therapies and approximately 12% of untreated
patients. In HIV-infected patients, lipodystrophy may be caused
by the viral infection itself, the use of antiretroviral
therapy, or both. Lipodystrophy is characterized by
abnormalities in the production and storage of fat, which lead
to excess abdominal fat, or lipohypertrophy, and the loss of fat
tissue, or lipoatrophy, generally occurring in the limbs and
facial area.
Excess abdominal fat in HIV-infected patients is associated with
significant health risks beyond the mortality risk of the HIV
infection itself. These health risks include metabolic
disturbances such as hyperlipidemia, an increase in the amount
of fat in the blood, and hyperglycemia, an increase in the
amount of sugar in the blood, both of which lead to increased
risks for cardiovascular disease and diabetes. While there is
evidence that suggests that lipoatrophy may be reduced with
certain newer HIV therapies, we are not aware of any evidence
showing that any currently-marketed HIV therapy reduces
lipohypertrophy or the incidence of lipohypertrophy.
Using data compiled by the United States Center for Disease
Control, or CDC, and the World Health Organization and UNAIDS,
or WHO/UNAIDS, we estimate that in 2012 there will be
approximately 540,000 HIV-infected patients treated with
antiretroviral therapies suffering from lipohypertrophy in our
primary target markets: 190,000 in the United States, 170,000 in
Europe, and 180,000 in Latin America. We also estimate that in
2012 an additional 117,000 HIV-infected untreated patients in
those territories will develop lipohypertrophy.
EGRIFTAtm
Our Lead Product
EGRIFTAtm
was approved by the FDA in November 2010 following a unanimous
vote by the Endocrinology and Metabolic Drugs Advisory Committee
of the FDA.
EGRIFTAtm
is the trade name used for our first marketed product using our
most advanced compound, tesamorelin. Tesamorelin is a GRF
analogue that stimulates the synthesis and pulsatile release of
endogenous growth hormone. Tesamorelin was synthesized using our
internally-developed peptide stabilization method. This method
increases a proteins resistance to enzymatic degradation,
which prolongs its duration of action and enhances its
effectiveness in clinical use. We believe this compound and
future GRF analogues that we are developing can be used in a
number of additional high-value indications. Clinical data have
shown tesamorelin to have both lipolytic (fat-burning) and
anabolic (muscle-building) properties. Our initial development
of
EGRIFTAtm
focused on the lipolytic properties of the compound.
1
Commercialization
of
EGRIFTAtm
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy is currently marketed exclusively in
the United States by EMD Serono Inc., or EMD Serono, pursuant to
a collaboration and licensing agreement. In January 2011, EMD
Serono launched
EGRIFTAtm
in the United States. EMD Serono is executing a launch program
that consists of (i) increasing disease awareness through
medical education to doctors, patient advocacy and advertising,
(ii) marketing and promotion through its experienced sales
force and (iii) supporting market access through patient
support, co-pay programs, reimbursement education and support
for payors. We believe
EGRIFTAtm
will achieve a high degree of physician and payor acceptance,
driven by our products safety and efficacy, the lack of
approved alternative therapies for these patients and the
prominent medical and social need to treat HIV/AIDS patients.
EMD Serono is responsible for establishing the sale price of
EGRIFTAtm
in the United States. The wholesale acquisition cost has been
set at US$23,900 per patient per year. We expect to receive our
first royalty payments in the second quarter of 2011.
We have also recently entered into distribution and licensing
agreements for
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy with Sanofi Winthrop Industries
S.A., or Sanofi, granting Sanofi the exclusive commercialization
rights in Latin America, Africa and the Middle East and with
Ferrer Internacional S.A., or Ferrer, granting Ferrer the
exclusive commercialization rights in Europe, Russia, South
Korea, Taiwan, Thailand and certain central Asian countries.
Muscle Wasting in
COPD Our Next Indication
Tesamorelins anabolic properties have led us to pursue its
development in muscle wasting in patients with chronic
obstructive pulmonary disease, or COPD, as our second
indication. COPD is characterized by progressive airflow
obstruction due to chronic bronchitis or emphysema leading in
certain cases to muscle wasting, a decrease of muscle mass and
deterioration in functionality. We have completed a Phase 2
trial which demonstrated a statistically significant increase in
lean body mass. We intend to commence a second Phase 2 clinical
study in the second half of 2011 to test different dosages of
tesamorelin with a new formulation.
Based on available market and industry data, we estimate that in
2009 there were approximately 3.1 million diagnosed COPD
patients with muscle wasting in the United States, France,
Germany, Italy, United Kingdom, Spain and Japan.
Future Product
Candidates
To solidify our leadership position in the field of GRF
therapeutics, we have embarked on a program to discover new
generations of GRF analogues. We believe that GRF compounds have
the potential to improve patient outcomes in many high-value
indications. We also believe that we can improve the route of
administration of GRF peptides to make them quicker and easier
to use for patients.
Our
Strategy
Our goal is to leverage our expertise in the field of metabolism
and GRF peptides to become a leading specialty pharmaceutical
company with the necessary infrastructure to take innovative
therapeutic products from research and development to full
commercialization in worldwide markets. Key elements of this
strategy include:
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Maximize the global commercial potential of
EGRIFTAtm. We
will continue to support our commercial partners in their
respective territories, including regulatory support,
manufacture and supply of
EGRIFTAtm
and potential co-promotion.
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Develop tesamorelin for muscle wasting in
COPD. We will be conducting a new clinical program
in muscle wasting in COPD. We have demonstrated in a first Phase
2 clinical trial that tesamorelin has increased muscle mass in
COPD patients. We believe tesamorelin could improve
patients functionality in daily activities and address a
significant unmet need in a large and potentially lucrative
market.
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Solidify our position as a leader in the field of novel
GRF products. We will leverage our expertise in
peptide discovery, drug development and regulatory affairs to
continue our development of new peptides, primarily
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GRF peptides, in order to expand our portfolio of product
candidates and solidify our position as a leader in this field.
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Be actively involved in the commercialization of our
products. We intend to retain commercial rights to
our future products for indications and territories where we
believe we can effectively market them. We may also co-promote
EGRIFTAtm
in certain territories and tesamorelin in other indications.
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Pursue external growth opportunities. In
addition to developing products internally, we will
opportunistically pursue in-licensing arrangements or
acquisitions of complementary businesses, compounds or products.
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Recent
Developments
On September 1, 2010, we announced the appointment of
Mr. John-Michel T. Huss as our President and Chief
Executive Officer. Mr. Huss joins us from Sanofi-aventis
S.A., a leading global pharmaceutical company, having most
recently acted as Chief of Staff to the companys Chief
Executive Officer. He brings to us more than 20 years of
global experience and leadership in the pharmaceutical industry.
On November 30, 2010, we received a US$25 million
milestone payment from EMD Serono associated with the FDA
approval of
EGRIFTAtm
in the United States for the reduction of excess abdominal fat
in HIV-infected patients with lipodystrophy.
On December 6, 2010, we entered into a distribution and
licensing agreement granting Sanofi the exclusive
commercialization rights to
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in Latin America, Africa and the
Middle East.
On February 3, 2011, we entered into a distribution and
licensing agreement granting Ferrer the exclusive
commercialization rights to
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in Europe, Russia, South Korea,
Taiwan, Thailand and certain central Asian countries.
On February 22, 2011, we announced a second indication for
tesamorelin: muscle wasting in COPD. We intend to commence a
second Phase 2 clinical study in the second half of 2011 to test
different dosages of tesamorelin with a new formulation.
Corporate
Information
We are incorporated under the laws of the Province of
Québec, Canada. Our office is located at 2310 Alfred-Nobel
Boulevard, Montréal, Québec, H4S 2B4, and our
telephone number is
(514) 336-7800.
Our website address is www.theratech.com. Information contained
on our website, or which can be accessed through our website, is
not a part of, and is not incorporated by reference in, this
prospectus.
3
THE
OFFERING
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Common shares offered by us
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11,000,000 common shares |
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Common shares to be outstanding after the offering
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71,515,764 common shares |
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Over-allotment option
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We have granted the underwriters an option to purchase up to an
additional 1,650,000 common shares from us at the public
offering price, less underwriting discounts and commissions, to
cover over-allotments. This option is exercisable in whole or in
part for a period of 30 days from the date of the
underwriting agreement. |
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Use of proceeds
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We expect to use the net proceeds from this offering to advance
our clinical program relating to muscle wasting in COPD, to
complete our new formulation of
EGRIFTAtm
and tesamorelin, to continue the research and development of
novel GRF peptides, for potential acquisitions, and for working
capital and other general corporate purposes. See Use of
Proceeds. |
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Toronto Stock Exchange symbol
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TH |
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Proposed Nasdaq Global Market symbol
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THER |
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Risk factors
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An investment in our common shares involves certain risks that
you should carefully consider. See Risk Factors. |
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Dividend Policy
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We have never paid dividends and do not anticipate paying
dividends in the foreseeable future. See Dividend
Policy. |
The number of common shares to be outstanding immediately after
the completion of this offering is based on the number of common
shares outstanding as of February 18, 2011 and excludes:
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3,038,971 common shares issuable upon the exercise of stock
options then outstanding at a weighted average exercise price of
$5.12 (approximately US$5.19) per share;
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788,172 common shares reserved for future issuance under our
stock option plan;
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207,306 common shares reserved for future issuance under our
common share purchase plan; and
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up to 1,650,000 common shares, if any, issuable pursuant to the
underwriters over-allotment option as described under
Underwriting.
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Except as otherwise indicated, information in this prospectus
assumes no exercise of the underwriters over-allotment
option.
4
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be
read in conjunction with our Managements Discussion and
Analysis of Financial Condition and Results of Operations and
our consolidated financial statements and the accompanying notes
included elsewhere in this prospectus. The consolidated
statement of comprehensive Income data for the years ended
November 30, 2010 and 2009, and the consolidated statement
of financial position data as at November 30, 2010 and
2009, set forth below, have been derived from our consolidated
financial statements that have been audited by KPMG LLP, and
which are included elsewhere in, or incorporated by reference
into, this prospectus. Our consolidated financial statements
have been prepared in accordance with International Financial
Reporting Standards, or IFRS, as issued by the International
Accounting Standards Board, or IASB. Our financial statements
were previously prepared in accordance with Canadian Generally
Accepted Accounting Principles, or GAAP. For more information
regarding the conversion to IFRS, please refer to the heading
Conversion to IFRS in our Managements
Discussion and Analysis of Financial Condition and Results of
Operations and to note 27 of the consolidated financial
statements, which are our first consolidated financial
statements prepared in accordance with IFRS. Our historical
results from any prior period are not necessarily indicative of
results to be expected for any future period.
IFRS differ in some significant respects from accounting
principles generally accepted in the United States, or
U.S. GAAP, and thus may not be comparable to the financial
statements of United States companies. These differences between
IFRS and U.S. GAAP might be material to the financial
information presented in this prospectus. In addition,
differences may arise in subsequent periods related to changes
in IFRS or U.S. GAAP or due to new transactions we enter
into. We are not required to prepare a reconciliation of our
consolidated financial statements and related footnote
disclosures between IFRS and U.S. GAAP and have not
quantified such differences. In making an investment decision,
potential investors must rely upon their own examination of the
company, the terms of this offering and the financial
information included herein. Potential investors should consult
their own professional advisors for an understanding of the
differences between IFRS and U.S. GAAP and how those
differences might affect the financial information herein.
Consolidated
Statement of Comprehensive Income Data:
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YEAR ENDED NOVEMBER 30,
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2010
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2009
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(in thousands, except per
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share amounts)
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Milestone payments
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$
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25,000
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$10,884
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Other revenue
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6,868
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6,584
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Total revenue
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31,868
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17,468
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Research and development expenses, net of tax credits
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14,064
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20,810
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Total operating expenses
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25,205
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34,215
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Total net financial income
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2,381
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1,591
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Net profit (loss) before income taxes
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9,044
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(15,156
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)
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Income tax expense
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114
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Net profit (loss)
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8,930
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(15,156
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)
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Total comprehensive income (loss) for the year
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8,214
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(14,246
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)
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Basic and diluted earnings (loss) per share
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0.15
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(0.25
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)
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5
The following table describes our cash and bonds, total assets,
total liabilities and total equity:
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as at November 30, 2010 and 2009, on an actual
basis; and
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as at November 30, 2010, on an as adjusted basis to give
effect to our sale of 11,000,000 common shares in this offering
at an assumed public offering price of US$5.08 per share (which
represents the U.S. dollar equivalent of the $5.01 closing price
of our common shares as reported on the TSX on February 18,
2011) and our receipt of estimated net proceeds of
US$50,231,000 ($49,528,000), after deducting estimated
underwriting discounts and commissions and estimated offering
expenses payable by us.
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Consolidated
Statement of Financial Position Data:
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AS AT NOVEMBER 30,
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2010
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2009
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ACTUAL
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AS ADJUSTED
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ACTUAL
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(in thousands)
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Cash and bonds
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$
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64,550
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$
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114,078
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$
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63,362
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Total assets
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71,651
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121,179
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69,154
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Total liabilities
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18,995
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18,995
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26,106
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Total equity
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52,656
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102,184
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43,048
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6
RISK
FACTORS
Before you invest in our common shares, you should understand
the high degree of risk involved. You should consider carefully
the following risks and uncertainties described below and other
information included in or incorporated by reference into this
prospectus, including our consolidated financial statements and
related notes included elsewhere in this prospectus, before you
decide to purchase our common shares. The following risks may
adversely impact our business, financial condition, operating
results and prospects. Additional risks and uncertainties,
including those that we do not know about or that we currently
believe are immaterial, may also adversely affect our business,
financial condition, operating results or prospects. As a
result, the trading price of our common shares could decline and
you could lose all or part of your investment.
Risks Related to
the Commercialization of our Product and Product
Candidates
Our commercial
success depends largely on the commercialization of
EGRIFTAtm;
the failure of
EGRIFTAtm
to obtain commercial acceptance would have a material
adverse effect on us.
Our ability to generate revenues in the future is primarily
based on the commercialization of
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy. In the short term, these revenues
should be primarily derived from the U.S. market alone.
Although we have entered into a collaboration and licensing
agreement with EMD Serono for the commercialization of
EGRIFTAtm
in the United States, there can be no assurance that
EGRIFTAtm
will be successfully commercialized in the United States, or in
any other country. Although we are developing other peptides,
all of them are at earlier stages of development and none of
them may reach the clinical trial phase, obtain regulatory
approval or, even if approved, be successfully commercialized.
The overall commercialization success of
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy will depend on several factors,
including:
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receipt of regulatory approvals for
EGRIFTAtm
from regulatory agencies in the territories other than the
United States in which we wish to expand the commercialization
of tesamorelin;
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market acceptance of
EGRIFTAtm
by the medical community, patients and third-party payors (such
as governmental health administration authorities and private
health coverage insurers);
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the amount of resources devoted by our commercial partners to
commercialize
EGRIFTAtm
in their respective territories;
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maintaining manufacturing and supply agreements to ensure the
availability of commercial quantities of
EGRIFTAtm
through validated processes;
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the number of competitors in our market; and
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protecting and enforcing our intellectual property and avoiding
patent infringement claims.
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The inability to successfully commercialize
EGRIFTAtm
in the United States for the reduction of excess abdominal fat
in HIV-infected patients with lipodystrophy in the short term
would delay our capacity to generate revenues and would have a
material adverse effect on our financial condition and operating
results.
We are or will
be dependent on a limited number of collaboration and licensing
agreements for the commercialization of
EGRIFTAtm
in the United States, Europe, Latin America, Africa and the
Middle East. These agreements place the commercialization of
EGRIFTAtm
in these markets outside of our control.
Although our collaboration and licensing agreements with EMD
Serono, Sanofi and Ferrer contain provisions governing their
respective responsibilities as partners for the
commercialization of
EGRIFTAtm
in their respective territories, our dependence on these
partners to commercialize
EGRIFTAtm
is subject to a number of risks, including:
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our limited control of the amount and timing of resources that
our commercial partners will be devoting to the
commercialization, marketing and distribution of tesamorelin,
including obtaining patient reimbursement for
EGRIFTAtm,
which could adversely affect our ability to obtain or maximize
our royalty payments;
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7
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disputes or litigation that may arise between us and our
commercial partners, which could adversely affect the
commercialization of tesamorelin, all of which would divert our
managements attention and our resources;
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our commercial partners not properly defending our intellectual
property rights or using them in such a way as to expose us to
potential litigation, which could, in both cases, adversely
affect the value of our intellectual property rights; and
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corporate reorganizations or changes in business strategies of
our commercial partners, which could adversely affect a
commercial partners willingness or ability to fulfill its
obligations under its respective agreement.
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Our collaboration and licensing agreements may be terminated by
our partners in the event of a breach by us of our obligations
under such agreements, including our obligation to supply
EGRIFTAtm,
for which we rely on third parties. Our collaboration and
licensing agreement with EMD Serono can also be terminated by
EMD Serono for their convenience on 180 days notice to us.
Such a termination could have an adverse effect on our revenues
related to the commercialization of
EGRIFTAtm
in the United States. In addition, EMD Serono has listed a
patent held by one of its affiliates in the Orange Book under
the Hatch-Waxman Act with respect to
EGRIFTAtm
in HIV-associated lipodystrophy. In the event of a termination
of our agreement with EMD Serono, EMD Serono could assert that
such patent would be infringed by our continued sale of
EGRIFTAtm
in the United States. Any such assertion would divert our
managements attention and, if successful, could expose us
to damages or require us to obtain a license from EMD Serono in
order to continue selling
EGRIFTAtm
in the United States, all of which could have a material adverse
effect on our results of operations, cash flows and financial
conditions.
If any one of our commercial partners terminates their agreement
with us or fails to effectively commercialize
EGRIFTAtm,
for any of the foregoing or other reasons, we may not be able to
replace the commercial partner and any of these events would
have a material adverse effect on our business, results of
operations and our ability to achieve future profitability, and
could cause our share price to decline.
We rely on
third parties for the manufacture and supply of
EGRIFTAtm
and tesamorelin and such reliance may adversely affect us if
the third parties are unable or unwilling to fulfill their
obligations.
The manufacture of pharmaceutical products requires significant
expertise and capital investment, including the development of
advanced manufacturing techniques and process controls. We do
not own or operate manufacturing facilities for the production
of tesamorelin or any of our other product candidates, nor do we
have plans to develop our own manufacturing operations in the
foreseeable future. We currently rely on third parties to
manufacture and supply all of our required raw materials, drug
substance and drug product for our preclinical research,
clinical trials and commercial sales. For tesamorelin for
clinical studies and
EGRIFTAtm
for commercial sales, we are currently using, and relying on,
single suppliers and single manufacturers for starting materials
and the final drug substance. Although potential alternative
suppliers and manufacturers have been identified, we have not
qualified these vendors to date and no assurance can be given
that such suppliers will be qualified in the future or receive
necessary regulatory approval.
Our reliance on third-party manufacturers exposes us to a number
of risks. We may be subject to delays in or suspension of the
manufacturing of
EGRIFTAtm
and tesamorelin if a third-party manufacturer:
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becomes unavailable to us for any reason, including as a result
of the failure to comply with good manufacturing practices, or
GMP, regulations;
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experiences manufacturing problems or other operational
failures, such as equipment failures or unplanned facility
shutdowns required to comply with GMP or damage from any event,
including fire, flood, earthquake, business restructuring or
insolvency; or
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fails to perform its contractual obligations under our
agreement, such as failing to deliver the quantities requested
on a timely basis.
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Any delay in or suspension of the supply of
EGRIFTAtm
could delay or prevent the sale of
EGRIFTAtm
and, accordingly, adversely affect our revenues and results of
operations. In addition, any manufacturing delay or delay in
delivering
EGRIFTAtm
may result in our being in default under our collaboration
agreements. If the damage to a
8
suppliers manufacturer facility is extensive, or, for any
reason, it does not operate in compliance with GMP or the
third-party manufacturer is unable or refuses to perform its
obligations under our agreement, we would need to find an
alternative third-party manufacturer. The selection of a
replacement third-party manufacturer would be time-consuming and
costly since we would need to validate the manufacturing
facility of such new third-party manufacturer. The validation
process would include an assessment of the capacity of such
third-party manufacturer to produce the quantities that we may
request from time to time, the manufacturing process and its
compliance with GMP. In addition, the third-party manufacturer
would have to familiarize itself with our technology. Any delay
in finding an alternative third-party manufacturer of
tesamorelin and
EGRIFTAtm
could result in a shortage of such analogue or product, which
could materially adversely affect our business and results of
operations.
Any delay in or suspension of the supply of tesamorelin could
delay or interrupt the conduct of clinical trials of our new
clinical programs relating to muscle wasting in COPD.
Even though we
have received regulatory approval for
EGRIFTAtm
in the United States, we still may not be able to
successfully commercialize it if we do not gain market
acceptance and the revenue that we generate from its sales, if
any, may be limited.
The commercial success of
EGRIFTAtm
or any future products for which we obtain marketing approval
from the FDA or other regulatory authorities, will depend upon
the acceptance of such product by the medical community,
including physicians, patients and health care payors. The
degree of market acceptance of any of our products will depend
on a number of factors, including:
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acceptance of the product by physicians and patients as safe and
effective treatments and addressing a significant unmet medical
need;
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product price;
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the effectiveness of our sales and marketing efforts (or those
of our commercial partners);
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storage requirements and ease of administration;
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dosing regimen;
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safety and efficacy;
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prevalence and severity of side effects;
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competitive products;
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the ability to obtain and maintain sufficient third-party
coverage or reimbursement from government health care programs,
including Medicare and Medicaid, private health insurers and
other third-party payors; and
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the willingness and ability of patients to pay
out-of-pocket
in the absence of third-party coverage.
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If
EGRIFTAtm
does not achieve an adequate level of acceptance by physicians,
health care payors and patients, we may not generate sufficient
revenue from this product, and we may not be able to achieve
profitability. Our efforts, and the efforts of our commercial
partners, to educate the medical community and third-party
payors on the benefits of tesamorelin may require significant
resources and may never be successful.
We have no
internal sales, marketing or distribution capabilities so we
must rely on strategic alliance agreements with third parties
for the sale and marketing of
EGRIFTAtm
or any future products.
We currently have no internal sales, marketing or distribution
capabilities and we rely on our commercial partners to market
and sell
EGRIFTAtm
in their respective territories. Our agreements with our
commercial partners contain termination provisions which, if
exercised, could delay or suspend the commercialization of
EGRIFTAtm
or any future products.
In the event of any such termination, in order to continue
commercialization, we would be required to build our own sales
force or enter into agreements with third parties to provide
such capabilities. We currently have limited
9
marketing capabilities and we have limited experience in
developing, training or managing a sales force. The development
of a sales force would be costly and would be time-consuming
given the limited experience we have in this area. To the extent
we develop a sales force, we could be competing against
companies that have more experience in managing a sales force
than we have and that have access to more funds than we with
which to manage a sales force. Consequently, there can be no
assurance that a sales force which we develop would be efficient
and would maximize the revenues derived from the sale of
EGRIFTAtm
or any future products.
We are
substantially dependent on revenues from
EGRIFTAtm.
Our current and future revenues depend substantially upon sales
of
EGRIFTAtm
by our commercial partners, EMD Serono, Sanofi and Ferrer. Any
negative developments relating to this product, such as safety
or efficacy issues, the introduction or greater acceptance of
competing products, including those marketed and sold by our
commercial partners, or adverse regulatory or legislative
developments, would have a material adverse effect on our
business, prospects and results of operations. Although we
continue to develop additional product candidates for
commercialization, we expect to be substantially dependent on
sales from
EGRIFTAtm
for the foreseeable future. A decline in sales from this product
would have a material adverse affect on our business and
financial condition.
Our levels of
revenues are highly dependent on obtaining patient reimbursement
for
EGRIFTAtm.
Market acceptance and sales of
EGRIFTAtm
will substantially depend on the availability of reimbursement
from third party payors such as governmental authorities,
including U.S. Medicare and Medicaid, managed care
providers, and private insurance plans and may be affected by
healthcare reform measures in the United States and elsewhere.
Government authorities and third-party payors, such as private
health insurers and health maintenance organizations, decide
which medications they will pay for and establish reimbursement
levels. A primary trend in the U.S. healthcare industry and
elsewhere is cost containment. Government authorities and these
third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular
medications. Increasingly, third-party payors have been
challenging the prices charged for products.
Under our agreements with our commercial partners, they are
responsible for seeking reimbursement of
EGRIFTAtm
in their respective territories and as a result we have no
control over whether or what level of reimbursement is achieved.
We cannot be sure that reimbursement by insurers, government or
other third parties will be available for
EGRIFTAtm
and, if reimbursement is available, the level of reimbursement
provided to patients. Reimbursement may impact the demand for,
or the price of,
EGRIFTAtm
and our future products for which we obtain marketing approval.
If reimbursement is not available or is available only in
limited amount, our commercial partners may not be able to
successfully commercialize
EGRIFTAtm
or our future products and it will have a material adverse
effect on our revenues and royalties, business and prospects.
A variety of
risks associated with our international business relationships
could materially adversely affect our business.
International business relationships in the United States,
Europe, Latin America, Africa, the Middle East and elsewhere
subject us to additional risks, including:
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differing regulatory requirements for drug approvals in foreign
countries;
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potentially reduced protection for intellectual property rights;
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potential third-party patent rights in foreign countries;
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the potential for so-called parallel importing, which is what
happens when a local seller, faced with high or higher local
prices, opts to import goods from a foreign market, with low or
lower prices, rather than buying them locally;
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unexpected changes in tariffs, trade barriers and regulatory
requirements;
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economic weakness, including inflation, or political
instability, particularly in foreign economies and markets;
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compliance with tax, employment, immigration and labour laws for
employees traveling abroad;
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foreign taxes;
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10
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foreign exchange contracts and foreign currency fluctuations,
which could result in increased operating expenses and reduced
revenue, and other obligations incident to doing business in
another country;
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workforce uncertainty in countries where labour unrest is more
common than in the United States and Canada;
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production shortages resulting from any events affecting raw
material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geo-political actions,
including war and terrorism, or natural disasters, including
earthquakes, volcanoes, typhoons, floods, hurricanes and fires.
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These and other risks of international business relationships
may materially adversely affect our business, prospects, results
of operations and financial condition.
Governments
outside the United States tend to impose strict price controls,
which may adversely affect our revenues, if any.
In several countries, including countries which are in Europe,
Latin America, Africa, and the Middle East, the pricing of
prescription drugs may be subject to governmental control. In
these countries, pricing negotiations with governmental
authorities can take considerable time and delay the marketing
of a product. To obtain reimbursement or pricing approval in
some countries, a clinical trial that compares the
cost-effectiveness of a product candidate to other available
therapies may be required. If reimbursement of our product is
unavailable or limited in scope or amount, or if pricing is set
at unsatisfactory levels, our commercial partners may not be
willing to devote resources to market and commercialize
EGRIFTAtm
or may decide to cease marketing such product. In such case, our
business, prospects and results of operations could be
materially adversely affected.
We face
competition and the development of new products by other
companies could materially adversely affect our business and
products.
The biopharmaceutical and pharmaceutical industries are highly
competitive and we must compete with pharmaceutical companies,
biotechnology companies, academic and research institutions as
well as governmental agencies for the development and
commercialization of products, most of which have substantially
greater financial, technical and personnel resources than us.
Although we believe that we have no direct competitors for the
reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy, we could face indirect competition from other
companies developing
and/or
commercializing metabolic products
and/or other
products that reduce or eliminate the occurrence of
lipodystrophy.
In the other clinical programs that we are currently evaluating
for development, there may exist companies that are at a more
advanced stage of developing a product to treat the diseases for
which we are evaluating clinical programs. Some of these
competitors could have access to capital resources, research and
development personnel and facilities that are superior to ours.
In addition, some of these competitors could be more experienced
than we are in the development and commercialization of medical
products and already have a sales force in place to launch new
products. Consequently, they may be able to develop alternative
forms of medical treatment which could compete with our products
and which could be commercialized more rapidly and effectively
than our products.
If we fail to
comply with government regulations regarding the import and
export of products and raw materials, we could be subject to
fines, sanctions and penalties that could adversely affect our
ability to operate our business.
We import and export products and raw materials from and to
several jurisdictions around the world. This process requires us
and our commercial partners to operate in a number of
jurisdictions with different customs and import/export
regulations. The regulations of these countries are subject to
change from time to time and we cannot predict the nature, scope
or impact of these changes upon our operations. We and our
commercial partners are subject to periodic reviews and audits
by U.S. and foreign authorities responsible for
administering these regulations. To the extent that we or our
commercial partners are unable to successfully defend against an
audit or review, we may be required to pay assessments,
penalties and increased duties, which may, individually or in
the aggregate, negatively impact our business, operating results
and financial condition.
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Risks Related to
the Regulatory Review Process
Even after
regulatory approval has been obtained regulatory agencies may
impose limitations on the indicated uses for which our products
may be marketed, subsequently withdraw approval or take other
actions against us that would be adverse to our
business.
Even though we have obtained marketing approval of
EGRIFTAtm
in the United States, the FDA and regulatory agencies in other
countries have the ability to limit the indicated use of a
product. Also, the manufacture, marketing and sale of our
products will be subject to ongoing and extensive governmental
regulation in the country in which we intend to market our
products. For example, although we obtained marketing approval
of
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in the United States, the marketing
of
EGRIFTAtm
will be subject to extensive regulatory requirements
administered by the FDA, such as adverse event reporting and
compliance with marketing and promotional requirements. The FDA
has also requested that we comply with certain post-approval
requirements in connection with the approval of
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy, namely, the development of a single
vial formulation of
EGRIFTAtm
(the development of a new presentation of the same formulation),
a long-term observational safety study using
EGRIFTAtm;
and a Phase 4 clinical trial. Although we have received
marketing approval from the FDA of tesamorelin for the reduction
of excess abdominal fat in HIV-infected patients with
lipodystrophy, there can be no guarantee that regulatory
agencies in other countries will approve tesamorelin for this
treatment in their respective countries.
Our third party manufacturing facilities for
EGRIFTAtm
will also be subject to continuous reviews and periodic
inspections and approval of manufacturing modifications by
regulatory agencies, including the FDA. The facilities must
comply with GMP regulations. The failure to comply with FDA
requirements can result in a series of administrative or
judicial sanctions or other setbacks, including:
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restrictions on the use of the product, manufacturers or
manufacturing processes;
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warning letters;
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civil or criminal penalties;
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fines;
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injunctions;
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product seizures or detentions;
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import or export bans or restrictions;
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product recalls and related publicity requirements;
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suspension or withdrawal of regulatory approvals;
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total or partial suspension of production; and
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refusal to approve pending applications for marketing approval
of new product candidates or supplements to approved
applications.
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Addressing any of the foregoing or any additional requirements
of the FDA or other regulatory authorities may require
significant resources and could impair our ability to
successfully commercialize our product candidates.
To date, we do
not have the required regulatory approvals to commercialize
EGRIFTAtm
outside of the United States and cannot guarantee that we
will obtain such regulatory approvals or that any of our product
candidates will be approved for commercialization in any
country, including the United States.
The commercialization of
EGRIFTAtm
outside of the United States and our future products first
requires the approval of the regulatory agencies in each of the
jurisdictions where we intend to sell such products. In order to
obtain the required approvals, we must demonstrate, following
preclinical and clinical studies, the safety, efficacy and
quality of a product.
The rules and regulations relating to the approval of a new drug
are complex and stringent. Although we have received marketing
approval in the United States from the FDA for
EGRIFTAtm,
there can be no guarantee that regulatory agencies in other
territories will approve
EGRIFTAtm
in their respective countries.
All of our product candidates are subject to preclinical and
clinical studies. If the results of such studies are not
positive, we may not be in a position to make any filing to
obtain the regulatory approval for the product candidate
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or, even where a product candidate has been filed for approval,
we may have to conduct additional clinical trials or testing on
such product candidate in an effort to obtain results that
further support the safety and efficacy of such product
candidate. Such studies are often costly and may also delay a
filing or, where additional studies or testing are required
after a filing has been made, the approval of a product
candidate.
While an application for a new drug is under review by a
regulatory agency, it is standard for such regulatory agency to
ask questions regarding the application that was submitted. If
these questions are not answered quickly and in a satisfactory
manner, the marketing approval of the product candidate subject
to the review and its commercialization could be delayed or, if
the questions are not answered in a satisfactory manner, denied.
If
EGRIFTAtm
is not approved by the appropriate regulatory agencies for
commercialization outside of the United States, our capacity to
generate revenues in the long-term will be impaired and this
will have an adverse effect on our financial condition and our
operating results.
Obtaining regulatory approval is subject to the discretion of
regulatory agencies in each relevant jurisdiction. Therefore,
even if we obtain regulatory approval from one agency, or
succeed in filing the equivalent of a new drug application, or
NDA, in other countries, or have obtained positive results
relating to the safety and efficacy of a product candidate, a
regulatory agency may not accept the filing or the results
contained therein as being conclusive evidence of the safety and
efficacy of a product candidate in order to allow us to sell the
product candidate in its country. A regulatory agency may
require that additional tests on the safety and efficacy of a
product candidate be conducted prior to granting approval of
such product candidate. These additional tests may delay the
approval of such product candidate, can have a material adverse
effect on our financial condition and results of operations
based on the type of additional tests to be conducted and may
not necessarily lead to the approval of the product candidate.
We have only
obtained FDA approval for
EGRIFTAtm
and we must complete several preclinical studies and clinical
trials for our other product candidates which may not yield
positive results and, consequently, could prevent us from
obtaining regulatory approval.
Obtaining FDA approval for the commercialization of drug
products requires a demonstration through preclinical studies
and clinical trials that the drug is safe and effective. All of
our product candidates are at the discovery stage, except our
peptide for the treatment of acute kidney injury, or AKI, which
is in preclinical development. In addition, in order to market
tesamorelin for other indications, we will need to demonstrate
its effectiveness and safety through additional studies and
clinical trials. Favorable results in our trials of tesamorelin
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy may not be predictive of the
efficacy and safety results in our Phase 2 clinical trials of
tesamorelin for the treatment of muscle wasting in COPD.
If any of our preclinical studies or clinical trials fail to
show positive efficacy data or result in adverse patient
reactions, we may be required to perform additional preclinical
studies or clinical trials, to extend the term of our studies
and trials, to increase the number of patients enrolled in a
given trial or to undertake ancillary testing. Any of these
events could cause an increase in the cost of product
development, delay filing of an application for marketing
approval or result in the termination of a study or trial and,
accordingly, could cause us to cease the development of a
product candidate. In addition, the future growth of our
business could be negatively impacted since there can be no
guarantee that we will be able to develop new compounds, license
or purchase compounds or product candidates that will result in
marketed products.
Recently
enacted and future legislation may increase the difficulty and
cost for us to obtain marketing approval of and commercialize
our product candidates and affect the prices we may
obtain.
In the United States and some foreign jurisdictions, there have
been a number of legislative and regulatory changes and proposed
changes regarding the healthcare system that could prevent or
delay marketing approval for our product candidates, restrict or
regulate post-approval activities and affect our ability to
profitably sell
EGRIFTAtm
or any of our other product candidates for which we intend to
seek marketing approval.
Legislative and regulatory proposals have been made to expand
post-approval requirements and restrict sales and promotional
activities for pharmaceutical products. We are not sure whether
additional legislative changes will be enacted, or whether the
FDA regulations, guidance or interpretations will be changed, or
what the impact of such changes on the marketing approvals of
our product candidates, if any, may be. In addition, increased
scrutiny by the
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U.S. Congress of the FDAs approval process may
significantly delay or prevent marketing approval, as well as
subject us to more stringent product labeling and post-marketing
testing and other requirements.
In the United States, the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, or MMA, changed the
way Medicare covers and pays for pharmaceutical products. The
legislation expanded Medicare coverage for drug purchases by the
elderly and introduced a new reimbursement methodology based on
average sales prices for drugs. In addition, this legislation
authorized Medicare Part D prescription drug plans to use
formularies where they can limit the number of drugs that will
be covered in any therapeutic class. As a result of this
legislation and the expansion of federal coverage of drug
products, we expect that there will be additional pressure to
contain and reduce costs. These cost reduction initiatives and
other provisions of this legislation could decrease the coverage
and sales price that we receive for
EGRIFTAtm
or any other approved products and could seriously harm our
business. While the MMA applies only to drug benefits for
Medicare beneficiaries, private payors often follow Medicare
coverage policy and payment limitations in setting their own
reimbursement rates, and any reduction in reimbursement that
results from the MMA may result in a similar reduction in
payments from private payors.
More recently, in March 2010, U.S. President Obama signed
into law the Health Care Reform Law, a sweeping law intended to
broaden access to health insurance, reduce or constrain the
growth of healthcare spending, enhance remedies against fraud
and abuse, add new transparency requirements for healthcare and
health insurance industries, impose new taxes and fees on the
health industry and impose additional health policy reforms.
Effective October 1, 2010, the Health Care Reform Law
revised the definition of average manufacturer price
for reporting purposes, which could increase the amount of
Medicaid drug rebates to states. Further, beginning in 2011, the
new law imposes a significant annual fee on companies that
manufacture or import branded prescription drug products. We
will not know the full effects of the Health Care Reform Law
until applicable U.S. federal and state agencies issue
regulations or guidance under the new law. Although it is too
early to determine the effect of the Health Care Reform Law, the
new law appears likely to continue to apply the pressure on
pharmaceutical pricing. Pressure on pharmaceutical pricing may
adversely affect the amount of our royalties in the United
States.
Risks Related to
Our Intellectual Property
Our failure to
protect our intellectual property may have a material adverse
effect on our ability to develop and commercialize our
products.
We will be able to protect our intellectual property rights from
unauthorized use by third parties only to the extent that our
intellectual property rights are covered and protected by valid
and enforceable patents or are effectively maintained as trade
secrets. We try to protect our intellectual property position
by, among other things, filing patent applications related to
our proprietary technologies, inventions and improvements that
are important to the development of our business.
Because the patent position of pharmaceutical companies involves
complex legal and factual questions, the issuance, scope,
validity, and enforceability of patents cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or
circumvented. If our patents are invalidated or found to be
unenforceable, we would lose the ability to exclude others from
making, using or selling the inventions claimed. Moreover, an
issued patent does not guarantee us the right to use the
patented technology or commercialize a product using that
technology. Third parties may have blocking patents that could
be used to prevent us from developing our product candidates,
selling our products or commercializing our patented technology.
Thus, patents that we own may not allow us to exploit the rights
conferred by our intellectual property protection.
Our pending patent applications may not be issued or granted as
patents. Even if issued, they may not be issued with claims of
sufficient breadth to protect our product candidates and
technologies or may not provide us with a competitive advantage
against competitors with similar products or technologies.
Furthermore, others may independently develop products or
technologies similar to those that we have developed or may
reverse engineer or discover our trade secrets through proper
means. In addition, the laws of many countries do not protect
intellectual property rights to the same extent as the laws of
Canada, the United States and the European Patent Convention,
and those countries may also lack adequate rules and procedures
for defending intellectual property rights effectively.
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Although we have received patents from the United States Patent
and Trademark Office, or USPTO, for the treatment of HIV-related
lipodystrophy with tesamorelin, there can be no guarantee that,
in the other countries where we filed patent applications for
the treatment of HIV-related lipodystrophy, we will receive a
patent or obtain granted claims of similar breadth to those
granted by the USPTO.
We also rely on trade secrets, know-how and technology, which
are not protected by patents, to maintain our competitive
position. We try to protect this information by entering into
confidentiality agreements with parties who have access to such
confidential information, such as our current and prospective
suppliers, distributors, manufacturers, commercial partners,
employees and consultants. Any of these parties may breach the
agreements and disclose confidential information to our
competitors. It is possible that a competitor will make use of
such information, and that our competitive position could be
disadvantaged.
Enforcing a claim that a third party infringes on, has illegally
obtained or is using an intellectual property right, including a
trade secret or know-how, is expensive and time-consuming and
the outcome is unpredictable. In addition, enforcing such a
claim could divert managements attention from our
business. If any intellectual property right were to be
infringed, disclosed to or independently developed by a
competitor, our competitive position could be harmed. Any
adverse outcome of such litigation or settlement of such a
dispute could subject us to significant liabilities, could put
one or more of our patents at risk of being invalidated or
interpreted narrowly, could put one or more of our pending
patent applications at risk of not issuing, or could facilitate
the entry of generic products. Any such litigation could also
divert our research, technical and management personnel from
their normal responsibilities.
Our ability to defend ourselves against infringement by third
parties of our intellectual property in the United States with
respect to tesamorelin for the treatment of HIV-related
lipodystrophy depends, in part, on our commercial partners
decision to bring an action against such third party. Under the
terms and conditions of our collaboration and licensing
agreement with EMD Serono, EMD Serono has the first right to
bring an action against a third party for infringing our patent
rights with respect to tesamorelin for the treatment of
HIV-related lipodystrophy. Any delay in pursuing such action or
in advising us that it does not intend to pursue the matter
could decrease sales, if any, of tesamorelin for the treatment
of HIV-related lipodystrophy and adversely affect our revenues.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation,
there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. For
example, confidential information may be disclosed,
inadvertently or as ordered by the court, in the form of
documents or testimony in connection with discovery requests,
depositions or trial testimony. This disclosure would provide
our competitors with access to our proprietary information and
may harm our competitive position.
Our commercial
success depends, in part, on our ability not to infringe on
third party patents and other intellectual property
rights.
Our capacity to commercialize our product candidates, and more
particularly tesamorelin, will depend, in part, upon our ability
to avoid infringing third party patents and other third-party
intellectual property rights. The biopharmaceutical and
pharmaceutical industries have produced a multitude of patents
and it is not always easy for participants, including us, to
determine which patents cover various types of products,
processes of manufacture or methods of use. The scope and
breadth of patents is subject to interpretation by the courts
and such interpretation may vary depending on the jurisdiction
where the claim is filed and the court where such claim is
litigated. The fact that we own patents for tesamorelin and for
the treatment of HIV-related lipodystrophy does not guarantee
that we are not infringing one or more third-party patents and
there can be no guarantee that we will not infringe or violate
third-party patents and other third-party intellectual property
rights in the United States or other jurisdictions.
Patent analysis for non-infringement is based in part on a
review of publicly available databases. Although we review from
time to time certain databases to conduct patent searches, we do
not have access to all databases. It is also possible that we
will not have reviewed some of the information contained in the
databases or we found it to be irrelevant at the time we
conducted the searches. In addition, because patents take years
to issue, there may be currently pending applications that have
not yet been published or that we are unaware of, which may
issue later as patents. As a result, there can be no guarantee
that we will not violate third-party patents.
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Because of the difficulty in analyzing and interpreting patents,
there can be no guarantee that a third party will not assert
that we infringe such third-partys patents or any of its
other intellectual property rights. Under such circumstances,
there is no guarantee that we would not become involved in
litigation. Litigation with any third party, even if the
allegations are without merit, is expensive, time-consuming and
would divert managements attention from the daily
execution of our business plan. Litigation implies that a
portion of our financial assets would be used to sustain the
costs of litigation instead of being allocated to further the
development of our business.
If we are involved in patent infringement litigation, we would
need to prevail in demonstrating that our products do not
infringe the asserted patent claims of the relevant patent, that
the patent claims are invalid or that the patent is
unenforceable. If we are found to infringe a third-party patent
or other intellectual property right, we could be required to
enter into royalty or licensing agreements on terms and
conditions that may not be favourable to us,
and/or pay
damages, including up to treble damages in the United Sates (for
example, if found liable of wilful infringement)
and/or cease
the development and commercialization of our product candidates.
Even if we were able to obtain a license, the rights may be
nonexclusive, which could result in our competitors gaining
access to the same intellectual property and to compete with us.
We have not been served with any notice alleging that we
infringe a third-party patent, but there may be issued patents
that we are unaware of that our products may infringe, or
patents that we believe we do not infringe but ultimately could
be found to infringe. We are aware of third-party patents for
the reduction of accumulation of fat tissue in HIV patients and,
if a patent infringement suit was brought against us, we believe
that we should not be found to infringe any valid claims of
these patents. If we were to challenge the validity of a
competitors issued United States patent in a United States
court, we would need to overcome a statutory presumption of
validity that attaches to every United States patent. This means
that, in order to prevail, we would have to present clear and
convincing evidence as to the invalidity of the patents
claims. We cannot guarantee that a court would find in our
favour on questions of infringement and validity. Any finding
that we infringe or violate a third-party patent or other
intellectual property right could materially adversely affect
our business, financial condition and operating results.
Other Risks
Related to Our Business
We have a
history of net losses and we may never achieve high
profitability.
We have been reporting losses since our inception (except for
the financial years ended November 30, 2010, 2001 and
2000) and, as at November 30, 2010, we had an
accumulated deficit of $235,116,000. We do not expect to
generate significant recurrent revenues sufficient to cover our
overall activities in the immediate future. As a result of the
foregoing, we will need to generate significant revenues to
achieve profitability.
Our profitability will depend on, among other things, our
commercial partners ability and willingness to
successfully commercialize
EGRIFTAtm
and to obtain regulatory approval for the use of tesamorelin in
the reduction of excess abdominal fat in HIV-infected patients
with lipodystrophy in Europe, Latin America, Africa and the
Middle East. However, there is no guarantee that our commercial
partners will succeed in commercializing
EGRIFTAtm
or that our product candidates will ever receive approval for
commercialization in any jurisdiction and, accordingly, we may
never sustain profitability.
We rely on
third-party service providers to conduct our preclinical studies
and clinical trials and the failure by any of these third
parties to comply with their obligations may delay the studies
which could have an adverse effect on our development
programs.
We have limited human resources to conduct preclinical studies
and clinical trials and must rely on third-party service
providers to conduct our studies and trials and carry out
certain data gathering and analyses. If our third-party service
providers become unavailable for any reason, including as a
result of the failure to comply with the rules and regulations
governing the conduct of preclinical studies and clinical
trials, operational failures such as equipment failures or
unplanned facility shutdowns, or damage from any event such as
fire, flood, earthquake, business restructuring or insolvency
or, if they fail to perform their contractual obligations
pursuant to the terms of our agreements with them, such as
failing to perform the testing, compute the data or complete the
reports further to the testing, we may incur delays which may be
significant in connection with the planned timing of our trials
and studies which could adversely affect the timing of the
development program of a product candidate or the filing of an
application for marketing approval in a jurisdiction where we
rely on third-party service providers to make such
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filing. In addition, where we rely on such third-party service
provider to help in answering any question raised by a
regulatory agency during its review of one of our files, the
unavailability of such third-party service provider may
adversely affect the timing of the review of an application and,
could ultimately delay the approval. If the damages to any of
our third-party service providers are material, or, for any
reason, such providers do not operate in compliance with Good
Laboratory Practices, or GLP, or are unable or refuse to perform
their contractual obligations, we would need to find alternative
third-party service providers.
If we needed to change or select new third-party service
providers, the planned working schedule related to preclinical
studies
and/or
clinical trials could be delayed since the number of competent
and reliable third-party service providers of preclinical and
clinical work in compliance with GLP is limited. In addition, if
we needed to change or select new third-party service providers
to carry out work in response to a regulatory agency review of
one of our applications, there may be delays in responding to
such regulatory agency which, in turn, may lead to delays in
commercializing a product candidate.
Any selection of new third-party service providers to carry out
work related to preclinical studies and clinical trials would be
time-consuming and would result in additional delays in
receiving data, analysis and reports from such third-party
service providers which, in turn, would delay the filing of any
new drug application with regulatory agencies for the purposes
of obtaining regulatory approval to commercialize our product
candidates. Furthermore, such delays could increase our
expenditures to develop a product candidate and materially
adversely affect our financial condition and operating results.
The conduct of
clinical trials requires the enrolment of patients and
difficulties in enrolling patients could delay the conduct of
our clinical trials or result in their
non-completion.
The conduct of clinical trials requires the enrolment of
patients. We may have difficulties enrolling patients for the
conduct of our future clinical trials as a result of design
protocol, the size of the patient population, the eligibility
criteria to participate in the clinical trials, the availability
of competing therapies, the patient referral practices of
physicians and the availability of clinical trial sites.
Difficulty in enrolling patients for our clinical trials could
result in the cancellation of clinical trials or delays in
completing them. Once patients are enrolled in a clinical trial,
the occurrence of any adverse drug effects or side effects
observed during the trial could result in the clinical trial
being cancelled. Any of these events would have material adverse
consequences on the timely development of our product
candidates, the filing of an NDA, or its equivalent, with
regulatory agencies and the commercialization of such product
candidates.
We may require
additional funding and may not be able to raise the capital
necessary to fund all or part of our capital requirements,
including to continue and complete the research and development
of our product candidates and their
commercialization.
We do not generate significant recurrent revenues and may need
financing in order to fund all or part of our capital
requirements to sustain our growth, to continue research and
development of new product candidates, to conduct clinical
programs, to develop our marketing and commercial capabilities
and to meet our compliance obligations with various rules and
regulations to which we are subject. In the past, we have been
financed through public equity offerings in Canada and private
placements of our equity securities and we may need to seek
additional equity offerings to raise capital, the size of which
cannot be predicted. However, the market conditions or our
business performance may prevent us from having access to the
public market in the future at the times or in the amounts
necessary. Therefore, there can be no guarantee that we will be
able to continue to raise additional equity capital by way of
public or private equity offerings in the future. In such a
case, we would have to use other means of financing, such as
issuing debt instruments or entering into private financing or
credit agreements, the terms and conditions of which may not be
favorable to us. If adequate funding is not available to us, we
may be required to delay, reduce, or eliminate our research and
development of new product candidates, our clinical trials or
our marketing and commercialization efforts to launch and
distribute new products, curtail significant portions of our
product development programs that are designed to identify new
product candidates and sell or assign rights to our
technologies, products or product candidates. In addition, the
issuance and sale of substantial amounts of equity, or other
securities, or the perception that such issuances and sales may
occur could adversely affect the market price of our common
shares.
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If product
liability lawsuits are brought against us, they could result in
costly and time-consuming litigation and significant
liabilities.
Despite all reasonable efforts to ensure the safety of
EGRIFTAtm
and our other product candidates, it is possible that we or our
commercial partners will sell products which are defective, to
which patients react in an unexpected manner, or which are
alleged to have side effects. The manufacture and sale of such
products may expose us to potential liability, and the
industries in which our products are likely to be sold have been
subject to significant product liability litigation. Any claims,
with or without merit, could result in costly litigation,
reduced sales, significant liabilities and diversion of our
managements time and attention and could have a material
adverse effect on our financial condition, business and results
of operations.
If a product liability claim is brought against us, we may be
required to pay legal and other expenses to defend the claim
and, if the claim is successful, damage awards may be
substantial
and/or may
not be covered, in whole or in part, by our insurance. We may
not have sufficient capital resources to pay a judgment, in
which case our creditors could levy against our assets. We may
also be obligated to indemnify our commercial partners and make
payments to other parties with respect to product liability
damages and claims. Defending any product liability claims, or
indemnifying others against those claims, could require us to
expend significant financial and managerial resources.
The
development and commercialization of our drugs could expose us
to liability claims which could exceed our insurance
coverage.
A risk of product liability claims is inherent in the
development and commercialization of human therapeutic products.
Product liability insurance is very expensive and offers limited
protection. A product liability claim against us could
potentially be greater than the available coverage and,
therefore, have a material adverse effect upon us and our
financial condition. Furthermore, a product liability claim
could tarnish our reputation, whether or not such claims are
covered by insurance or are with or without merit.
We depend on
our key personnel to research, develop and bring new products to
the market and the loss of key personnel or the inability to
attract highly qualified individuals could have a material
adverse effect on our business and growth
potential.
The operation of our business requires qualified scientific and
management personnel. The loss of scientific personnel or
members of management could have a material adverse effect on
our business. In addition, our growth is and will continue to be
dependent, in part, on our ability to hire and retain the
employment of qualified personnel. There can be no guarantee
that we will be able to continue to retain our current employees
or will be able to attract qualified personnel to achieve our
business plan.
We may be
unable to identify and complete in-licensing or acquisitions.
In-licensing or acquisitions could divert managements
attention and financial resources, may negatively affect our
operating results and could cause significant dilution to our
shareholders.
In the future, we may engage in selective in-licensing or
acquisitions of products or businesses that we believe are
complementary to our products or business. There is a risk that
we will not be able to identify suitable in-licensing or
acquisition candidates available for sale at reasonable prices,
complete any in-licensing or acquisition, or successfully
integrate any in-licensed or acquired product or business into
our operations. We are likely to face competition for
in-licensing or acquisition candidates from other parties
including those that have substantially greater available
resources. In-licensing or acquisitions may involve a number of
other risks, including:
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diversion of managements attention;
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disruption to our ongoing business;
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failure to retain key acquired personnel;
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difficulties in integrating acquired operations, technologies,
products or personnel;
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unanticipated expenses, events or circumstances;
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assumption of disclosed and undisclosed liabilities;
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inappropriate valuation of the acquired in-process research and
development, or the entire acquired business; and
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difficulties in maintaining customer relations.
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If we do not successfully address these risks or any other
problems encountered in connection with an acquisition, the
acquisition could have a material adverse effect on our
business, results of operations and financial condition.
Inherited liabilities of or other issues with an acquired
business could have a material adverse effect on our performance
or our business as a whole. In addition, if we proceed with an
acquisition, our available cash may be used to complete the
transaction, diminishing our liquidity and capital resources, or
shares may be issued which could cause significant dilution to
our existing shareholders.
We may not
achieve our publicly announced milestones on time.
From time to time, we publicly announce the timing of certain
events to occur. These statements are forward-looking and are
based on the best estimate of management at the time relating to
the occurrence of such events. However, the actual timing of
such events may differ from what has been publicly disclosed.
Events such as completion of a clinical program, discovery of a
new product candidate, filing of an application to obtain
regulatory approval, beginning of commercialization of our
products or announcement of additional clinical programs for a
product candidate may vary from what is publicly disclosed.
These variations may occur as a result of a series of events,
including the nature of the results obtained during a clinical
trial or during a research phase, problems with a supplier or a
commercial partner or any other event having the effect of
delaying the publicly announced timeline. We undertake no
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise, after we distribute this prospectus, except as
otherwise required by law. Any variation in the timing of
certain events having the effect of postponing such events could
have an adverse material effect on our business plan, financial
condition or operating results.
The outcome of
scientific research is uncertain and our failure to discover new
compounds could slow down the growth of our portfolio of
products.
We conduct research activities in order to increase our
portfolio of product candidates. The outcome of scientific
research is uncertain and may prove unsuccessful and, therefore,
may not lead to the discovery of new molecules and progression
of existing compounds to an advanced development stage. Our
inability to develop new compounds or to further develop the
existing ones could slow down the growth of our portfolio of
products.
Risks Related to
this Offering and our Common Shares
Our share
price has been volatile, and an investment in our common shares
could suffer a decline in value.
Since our initial public offering in Canada, our valuation and
share price have had no meaningful relationship to current or
historical financial results, asset values, book value or many
other criteria based on conventional measures of the value of
common shares. The market price of our common shares will
fluctuate due to various factors including the risk factors
described herein and other circumstances beyond our control.
In the past, when the market price of a stock has been volatile,
shareholders have often instituted securities class action
litigation against that company. If any of our shareholders
brought a lawsuit against us, we could incur substantial costs
defending the lawsuit. The lawsuit could also divert the time
and attention of our management.
Our common
shares have no prior trading history in the United States, and
an active market may not develop.
Our common shares are currently listed on the Toronto Stock
Exchange, or TSX, but are not listed on any U.S. stock
exchange or quoted on any U.S. quotation system.
Accordingly, prior to this offering, there has been no public
market in the United States for our common shares. The initial
U.S. public offering price for our common shares may bear
no relationship to the price at which our common shares will
trade upon the completion of this offering. The price of our
common shares may be lower than the price of the shares sold in
this offering. In addition, because the liquidity and trading
patterns of the common shares listed on the TSX may be
substantially different from those of securities quoted on the
Nasdaq Global Market, or Nasdaq, historical trading prices may
not be indicative of the prices at which our shares will trade
in the future. Although we have applied to have our common
shares approved for quotation on the Nasdaq, an active trading
market for our shares may never develop or be sustained in the
United States following this offering. If an active market for
our common shares does not develop, it may be difficult for
U.S. residents to sell the shares they purchase in this
offering without depressing the market price for the shares or
at all.
19
We will incur
increased costs as a result of becoming a reporting company in
the United States.
As a U.S. reporting company, we will incur significant
legal, accounting, insurance and other expenses that we have not
incurred as a public company in Canada, including costs
associated with reporting requirements. We also have incurred
and will incur additional costs associated with compliance with
the Sarbanes-Oxley Act of 2002, or SOX, and related rules
implemented by the Securities and Exchange Commission, or SEC,
and Nasdaq. The expenses incurred by U.S. reporting
companies generally for reporting and corporate governance
purposes have been increasing. We expect these rules and
regulations to increase our legal and financial compliance costs
and to make some activities more time-consuming and costly,
although we are currently unable to estimate these costs with
any degree of certainty.
Our quarterly
operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly
fluctuations. Our net loss and other operating results will be
affected by numerous factors, including:
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variations in the level of revenues and royalties received
related to
EGRIFTAtm;
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variations in the level of expenses related to our development
programs;
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addition or termination of clinical trials;
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any intellectual property infringement lawsuit in which we may
become involved;
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regulatory developments affecting our product candidates;
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our execution of any collaborative, licensing or similar
arrangements, and the timing of payments we may make or receive
under these arrangements; and
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the achievement and timing of milestone payments under our
existing strategic partnership agreements.
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If our quarterly operating results fall below the expectations
of investors or securities analysts, the price of our common
shares could decline substantially. Furthermore, any quarterly
fluctuations in our operating results may, in turn, cause the
price of our stock to fluctuate substantially.
We may
allocate the net proceeds from this offering in ways that you
and other shareholders may not approve.
We currently intend to use the proceeds from this offering to
develop tesamorelin to advance our clinical program relating to
muscle wasting in COPD, to complete our new formulation of
EGRIFTAtm
and tesamorelin, to finance our portion of the costs related to
post-approval commitments required by the FDA, to continue the
research and development of novel GRF peptides, for potential
acquisitions, and for working capital and other general
corporate purposes. Because of the number and variability of
factors that will determine our use of the proceeds from this
offering, their ultimate use may vary substantially from their
currently intended use. As such, our management will have broad
discretion in the application of the net proceeds from this
offering and could spend the proceeds in ways that do not
necessarily improve our operating results or enhance the value
of our common shares. For a further description of our intended
use of the proceeds of the offering, see Use of
Proceeds.
You will
experience immediate and substantial dilution in the shares that
you purchase in this offering because the per share price in
this offering is substantially higher than the net tangible book
value of existing common shares.
If you purchase shares in this offering, you will pay more for
your shares than the net tangible book value of existing common
shares. As a result, you will experience an immediate and
substantial dilution in the pro forma net tangible book value of
your shares. We have previously granted options to certain
officers, directors, consultants and other employees to acquire
our common shares at prices significantly below the public
offering price. To the extent these outstanding options are
exercised in the future, you will incur further dilution. See
Dilution.
20
We do not
intend to pay dividends on our common shares and, consequently,
your ability to achieve a return on your investment will depend
on appreciation in the price of our common shares.
We have never declared or paid any cash dividend on our common
shares and do not currently intend to do so for the foreseeable
future. We currently anticipate that we will retain future
earnings for the development, operation and expansion of our
business and do not anticipate declaring or paying any cash
dividends for the foreseeable future. Therefore, the success of
an investment in our common shares will depend upon any future
appreciation in their value. There is no guarantee that our
common shares will appreciate in value or even maintain the
price at which our shareholders have purchased their shares. See
Dividend Policy.
Our revenues
and expenses may fluctuate significantly and any failure to meet
financial expectations may disappoint securities analysts or
investors and result in a decline in the price of our common
shares.
Our revenues and expenses have fluctuated in the past and are
likely to do so in the future. These fluctuations could cause
our share price to decline. Some of the factors that could cause
revenues and expenses to fluctuate include the following:
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the inability to complete product development in a timely manner
that results in a failure or delay in receiving the required
regulatory approvals or allowances to commercialize product
candidates;
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the timing of regulatory submissions and approvals;
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the timing and willingness of any current or future
collaborators to invest the resources necessary to commercialize
the product candidates;
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the outcome of any litigation; changes in foreign currency
fluctuations;
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the timing of achievement and the receipt of milestone payments
from current or future third parties;
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failure to enter into new or the expiration or termination of
current agreements with third parties; and
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failure to introduce the product candidates to the market in a
manner that generates anticipated revenues.
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Future sales
of our common shares may cause our stock price to
decline.
The market price of our common shares could decline as a result
of issuances by us or sales by our existing shareholders of
common shares in the market after this offering, or the
perception that these sales could occur. Sales by shareholders
might also make it more difficult for us to sell equity
securities at a time and price that we deem appropriate. Upon
the closing of this offering, there will be 71,515,764 common
shares outstanding, 70,791,792 of which will be freely tradable
immediately after this offering on either the TSX or the Nasdaq.
An additional 723,972 common shares held by our directors and
officers may be sold 90 days after the date of this
offering.
We may be
adversely affected by currency fluctuations.
A substantial portion of our revenue is earned in
U.S. dollars, but a substantial portion of our operating
expenses are incurred in Canadian dollars. Fluctuations in the
exchange rate between the U.S. dollar and other currencies,
such as the Canadian dollar, may have a material adverse effect
on our business, financial condition and operating results. We
do not currently engage in transactional hedging schemes but we
do attempt to hedge or mitigate the risk of currency
fluctuations by actively monitoring and managing our foreign
currency holdings relative to our foreign currency expenses.
Because we are
a Canadian company, certain civil liabilities and judgments may
not be enforceable against us.
We are incorporated under the laws of the Province of
Québec, Canada. Most of our directors and officers and
certain of the experts named elsewhere in this prospectus are
residents of Canada. All or a substantial portion of our assets
and the assets of these persons are located outside of the
United States. As a result, it may be difficult for a
shareholder to initiate a lawsuit within the United States
against these
non-U.S. residents,
or to enforce in the
21
United States judgments that are obtained in a U.S. court
against us or these persons. It may also be difficult for
shareholders to enforce a U.S. judgment in Canada, or to
succeed in a lawsuit in Canada, based solely on violations of
U.S. securities laws. See Enforceability of Civil
Liabilities.
Our
shareholder rights plan and certain Canadian laws could delay or
deter a change of control.
Our shareholder rights plan entitles a rights holder, other than
a person or group holding 20% or more of our common shares, to
subscribe for our common shares at a discount of 50% to the
market price at that time, subject to certain exceptions. See
Description of Share Capital Shareholder
Rights Plan.
The Investment Canada Act (Canada) subjects an acquisition of
control of a company by a non-Canadian to government review if
the value of the assets as calculated pursuant to the
legislation exceeds a threshold amount. A reviewable acquisition
may not proceed unless the relevant minister is satisfied that
the investment is likely to be a net benefit to Canada.
Any of the foregoing could prevent or delay a change of control
and may deprive or limit strategic opportunities for our
shareholders to sell their shares.
Our
independent registered public accounting firm may not be able to
conclude that our internal control over financial reporting are
effective as required by Section 404 of Sarbanes Oxley Act
of 2002.
Pursuant to Section 404 of SOX, beginning with our Annual
Report on
Form 40-F
for the fiscal year ended November 30, 2012, our
independent registered public accounting firm will be required
to furnish a report on our internal controls over financial
reporting. We can provide no assurance as to our independent
registered public accounting firms conclusions with
respect to the effectiveness of our internal controls over
financial reporting under Section 404 of SOX. In connection
with the attestation process by our independent registered
public accounting firm, we may encounter problems or delays in
completing the implementation of any requested improvements and
receiving a favourable attestation. If our independent
registered public accounting firm is unable to provide an
unqualified attestation report on our internal controls,
investors could lose confidence in our financial information and
our stock price could decline.
We believe
that we are not currently a PFIC for U.S. federal income tax
purposes, but PFIC classification is fundamentally factual in
nature, determined annually and subject to change.
We do not believe that we are currently a passive foreign
investment company, or PFIC, and do not expect to become a PFIC
for U.S. federal income tax purposes in the foreseeable
future. However, if we are a PFIC or if we were to become a PFIC
in future taxable years while a U.S. Holder (as defined
below under the heading Certain U.S. Federal Income
Tax Considerations) holds common shares, such
U.S. Holder would generally be subject to adverse
U.S. federal income tax consequences, including the
treatment of gain realized on the sale of common shares as
ordinary (rather than capital gain) income, potential interest
charges on those gains and certain other distributions made by
us and ineligibility for the preferential tax rates on dividends
paid by qualified foreign corporations generally available to
certain non-corporate U.S. Holders. For a more detailed
discussion of the consequences of our company being classified
as a PFIC, including discussion of certain elections that (if
available) could mitigate some of the adverse consequences
described above, see below under the heading Certain
Material Income Tax Considerations Certain U.S.
Federal Income Tax Considerations Passive Foreign
Investment Company.
U.S. purchasers are urged to consult their tax advisors
with respect to the U.S. federal, state, local and
non-U.S. tax
consequences of the acquisition, ownership, and disposition of
the Offered Shares as may be applicable to their particular
circumstances.
As a foreign
private issuer, we are subject to different U.S. securities laws
and rules than a domestic U.S. issuer, which may limit the
information publicly available to our
shareholders.
As a foreign private issuer we are not required to comply with
all the periodic disclosure requirements of the Securities
Exchange Act of 1934, as amended, and therefore there may be
less publicly available information about us than if we were a
U.S. domestic issuer. In addition, our officers, directors,
and principal shareholders are exempt from the reporting and
short swing profit recovery provisions of
Section 16 of the Securities Exchange Act of
22
1934, as amended, and the rules promulgated thereunder.
Therefore, our U.S. shareholders may not know on a timely basis
when our officers, directors and principal shareholders purchase
or sell our common shares.
We may lose
our foreign private issuer status in the future, which could
result in significant additional costs and expenses to
us.
In order to maintain our current status as a foreign private
issuer, a majority of our common shares must be either directly
or indirectly owned by non-residents of the United States unless
we also satisfy one of the three additional requirements in
accordance with the definition of foreign private
issuer under the Securities Exchange Act of 1934. In
addition to the possibility of a majority of our common shares
being owned by residents of the United States, if (i) the
majority of our executive officers or directors are United
States citizens or residents, (ii) more than fifty percent
of our assets are located in the United States and
(iii) our business is administered principally in the
United States, then we would lose our foreign private issuer
status. At this time, we satisfy all requirements to preserve
our status as a foreign private issuer, but we cannot be certain
that we will meet any or all of these requirements in the
future. The regulatory and compliance costs to us under
U.S. federal securities laws as a U.S. domestic issuer
may be significantly more than the costs we incur as a Canadian
foreign private issuer eligible to use the multijurisdictional
disclosure system, or MJDS. If we are not a foreign private
issuer, we would not be eligible to use the MJDS or other
foreign issuer forms and would be required to file periodic and
current reports and registration statements on
U.S. domestic issuer forms with the SEC, which are more
detailed and extensive than the forms available to a foreign
private issuer. We may also be required to prepare our financial
statements in accordance with U.S. GAAP. In addition, we
may lose the ability to rely upon exemptions from Nasdaq
corporate governance requirements that are available to foreign
private issuers.
23
EXCHANGE RATE
INFORMATION
The following table sets forth for each period indicated:
(i) the closing exchange rates in effect at the end of the
period; (ii) the high and low closing exchange rates during
such period; and (iii) the average closing exchange rates
for such period, for one Canadian dollar, expressed in
U.S. dollars, as quoted by the Bank of Canada.
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PERIOD FROM
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DECEMBER 1, 2010
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YEAR ENDED
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YEAR ENDED
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TO FEBRUARY 18,
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NOVEMBER 30,
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NOVEMBER 30,
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2011
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2010
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2009
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Period End
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US$
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1.0142
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US$
|
0.9741
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US$
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0.9473
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High
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|
US$
|
1.0153
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|
US$
|
1.0012
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|
|
US$
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0.9748
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|
Low
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|
US$
|
0.9828
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|
US$
|
0.9307
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|
|
US$
|
0.7698
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|
Average
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|
US$
|
1.0060
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|
|
US$
|
0.9613
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|
|
US$
|
0.8692
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The average closing exchange rate is calculated based on the
last business day of each month for the applicable period. On
February 18, 2011, the closing exchange rate for one
Canadian dollar, expressed in U.S. dollars, as quoted by
the Bank of Canada was US$1.0142.
24
USE OF
PROCEEDS
Based on an assumed public offering price of US$5.08 per
share (which represents the U.S. dollar equivalent of the $5.01
closing price of our common shares as reported on the TSX on
February 18, 2011), the net proceeds to us from the
sale of our common shares in this offering will be approximately
US$50.2 million, or approximately US$58.1 million if
the over-allotment option is exercised in full, in each case,
after deducting estimated underwriting discounts and commissions
and estimated expenses of this offering.
We expect to use the net proceeds from this offering (i) to
advance our clinical program relating to muscle wasting in COPD,
(ii) to complete our new formulation of
EGRIFTAtm
and tesamorelin, (iii) to continue the research and development
of novel GRF peptides, (iv) for potential acquisitions, and (v)
for working capital and other general corporate purposes.
Pending such uses, we plan to invest the net proceeds of this
offering in short-term, interest-bearing investment-grade
securities and government securities. We will retain broad
discretion in allocating the net proceeds of this offering based
on budgets approved by our board of directors and consistent
with established internal control guidelines. There may,
however, be circumstances where, for sound business reasons, a
reallocation of the net proceeds may be necessary and our actual
use of such net proceeds may vary depending on our operating and
capital needs from time to time.
25
TRADING PRICE AND
VOLUME
Our common shares are traded on the TSX under the symbol
TH. We have applied to list our common shares on the
Nasdaq under the symbol THER. The following table
sets forth the high and low closing sale prices for our common
shares for the periods indicated, as reported on the TSX.
However, you should not view this presentation as an indication
that the market price of our common shares will continue at such
levels.
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MONTH
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HIGH
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LOW
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VOLUME
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Feb. 1 to Feb. 18, 2011
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$
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5.88
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$
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5.01
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4,371,300
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|
January 2011
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|
$
|
5.90
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|
|
$
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5.43
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|
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3,319,500
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|
December 2010
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|
$
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5.69
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|
|
$
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5.27
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|
|
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4,038,000
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|
November 2010
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|
$
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5.80
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|
|
$
|
4.91
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|
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8,127,400
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October 2010
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|
$
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5.15
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|
|
$
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4.44
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|
|
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2,944,000
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|
September 2010
|
|
$
|
4.98
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|
|
$
|
4.78
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|
|
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1,230,300
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|
August 2010
|
|
$
|
5.08
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|
|
$
|
4.75
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|
|
|
1,934,900
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|
July 2010
|
|
$
|
5.48
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|
|
$
|
4.82
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|
|
|
3,795,500
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|
June 2010
|
|
$
|
5.59
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|
|
$
|
4.61
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|
|
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6,188,600
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|
May 2010
|
|
$
|
5.02
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|
|
$
|
2.09
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|
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11,593,700
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|
April 2010
|
|
$
|
5.20
|
|
|
$
|
4.82
|
|
|
|
1,960,000
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|
March 2010
|
|
$
|
5.50
|
|
|
$
|
4.80
|
|
|
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2,612,100
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|
February 2010
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|
$
|
5.03
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|
|
$
|
4.67
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|
|
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2,205,500
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On February 18, 2011, the closing price of our common shares as
reported on the TSX was $5.01.
26
DIVIDEND
POLICY
We have never declared or paid cash dividends on our common
shares and do not anticipate paying any cash dividends on our
common shares in the foreseeable future. We presently intend to
retain future earnings, if any, to finance the expansion and
growth of our business. Any future determination to pay
dividends will be at the discretion of our board of directors
and will depend on our financial condition, results of
operations, capital requirements and other factors the board of
directors deems relevant. In addition, the terms of any future
debt or credit facility may preclude us from paying dividends.
27
CAPITALIZATION
The following table describes our cash, short-term and long-term
investments and our capitalization as at November 30, 2010:
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on an actual basis; and
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on an as-adjusted basis to give effect to our sale of 11,000,000
common shares in this offering at an assumed public offering
price of US$5.08 per share (which represents the U.S.
dollar equivalent of the $5.01 closing price of our common
shares as reported on the TSX on February 18, 2011) and our
receipt of estimated net proceeds of US$50,231,000
($49,528,000), after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
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You should read the information below with our consolidated
financial statements and related notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this prospectus.
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|
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|
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AS AT NOVEMBER 30, 2010
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ACTUAL
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|
AS ADJUSTED
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|
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$
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|
$
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|
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(in thousands)
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|
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(unaudited)
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|
Cash and short-term investments
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|
$
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28,509
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$
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78,037
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Long-term investments
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|
|
36,041
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|
36,041
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|
|
|
|
|
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|
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Total
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|
|
64,550
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|
|
|
114,078
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|
|
|
|
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Shareholders equity:
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|
|
|
|
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Common shares, without par value; unlimited number of shares
authorized; 60,512,764 shares issued and outstanding,
actual and 71,512,764 common shares issued and outstanding, as
adjusted
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|
|
279,398
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|
|
|
334,508
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Contributed surplus
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|
|
7,808
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|
|
|
7,808
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Deficit
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|
|
(235,116
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)
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|
|
(240,698
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)
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Accumulated other comprehensive income
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|
|
566
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|
|
|
566
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|
|
|
|
|
|
|
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|
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Total shareholders equity
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|
|
52,656
|
|
|
|
102,184
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|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
52,656
|
|
|
$
|
102,184
|
|
|
|
|
|
|
|
|
|
|
28
DILUTION
Our net tangible book value as at November 30, 2010 was
approximately $52.7 million, or $0.87 per common share. Net
tangible book value per share represents the total amount of our
tangible assets (which consists of all of our assets) less total
liabilities, divided by the number of common shares outstanding.
Dilution in net tangible book value per share represents the
difference between the amount per share that you pay in this
offering and the net tangible book value per share after this
offering.
Without taking into account any changes in such net tangible
book value after November 30, 2010 other than to give
effect to the issuance and sale by us of 11,000,000 common
shares in the offering at an assumed public offering price of
US$5.08 per share (which represents the U.S. dollar equivalent
of the $5.01 closing price of our common shares as reported on
the TSX on February 18, 2011) and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses of approximately $5.6 million payable by us,
our pro forma net tangible book value as at November 30,
2010 is $102.2 million, or $1.43 per share. This represents an
immediate increase in the net tangible book value of $0.56 per
share to existing shareholders and an immediate dilution of
$3.58 per share to new investors. The following table
illustrates the per share dilution.
|
|
|
|
|
|
|
$
|
|
Canadian dollar equivalent of assumed U.S. public offering price
per share
|
|
|
5.01
|
|
Net tangible book value per share as at November 30, 2010
|
|
|
0.87
|
|
Increase per share to existing investors
|
|
|
0.56
|
|
Pro forma net tangible book value per share after this offering
|
|
|
1.43
|
|
Dilution per share to new investors
|
|
|
3.58
|
|
The foregoing discussion and table assumes no exercise of any
outstanding stock options and no issuance of common shares
reserved for future issuance under our stock option plan or our
common share purchase plan. As at November 30, 2010, there
were options outstanding to purchase 2,849,138 common shares at
a weighted average exercise price of $5.12 per share. In
addition, we may grant more options in the future.
Assuming the exercise in full of the underwriters
over-allotment option, our pro forma net tangible book value as
at November 30, 2010 would have been $109.9 million, or
$1.50 per share. This represents an immediate increase in the
net tangible book value of $0.63 per share to existing
shareholders and an immediate dilution of $3.51 per share to new
investors.
29
SELECTED
CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be
read in conjunction with our Managements Discussion and
Analysis of Financial Condition and Results of Operations and
our consolidated financial statements and the accompanying notes
included elsewhere in this prospectus. The consolidated
statement of comprehensive income data for the years ended
November 30, 2010 and 2009, and the consolidated statement
of financial position data as at November 30, 2010 and
2009, set forth below, have been derived from our consolidated
financial statements that have been audited by KPMG LLP, and
which are included elsewhere in, or incorporated by reference
into, this prospectus. Our consolidated financial statements
have been prepared in accordance with IFRS as issued by the
IASB. Our financial statements were previously prepared in
accordance with GAAP. For more information regarding the
conversion to IFRS, please refer to the heading Conversion
to IFRS in our Managements Discussion and Analysis
of Financial Condition and Results of Operations and to
note 27 of the consolidated financial statements, which are
our first consolidated financial statements prepared in
accordance with IFRS. Our historical results from any prior
period are not necessarily indicative of results to be expected
for any future period.
IFRS differ in some significant respects from U.S. GAAP,
and thus may not be comparable to the financial statements of
United States companies. These differences between IFRS and
U.S. GAAP might be material to the financial information
presented in this prospectus. In addition, differences may arise
in subsequent periods related to changes in IFRS or
U.S. GAAP or due to new transactions we enter into. We are
not required to prepare a reconciliation of our consolidated
financial statements and related footnote disclosures between
IFRS and U.S. GAAP and have not quantified such
differences. In making an investment decision, potential
investors must rely upon their own examination of the Company,
the terms of this offering and the financial information
included herein. Potential investors should consult their own
professional advisors for an understanding of the differences
between IFRS and U.S. GAAP and how those differences might
affect the financial information herein.
Consolidated
Statement of Comprehensive Income Data:
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED NOVEMBER 30,
|
|
|
2010
|
|
2009
|
|
|
(in thousands, except per
|
|
|
share amounts)
|
|
Milestone payments
|
|
$
|
25,000
|
|
|
|
$10,884
|
|
Other revenue
|
|
|
6,868
|
|
|
|
6,584
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
31,868
|
|
|
|
17,468
|
|
Research and development expenses, net of tax credits
|
|
|
14,064
|
|
|
|
20,810
|
|
Total operating expenses
|
|
|
25,205
|
|
|
|
34,215
|
|
Total net financial income
|
|
|
2,381
|
|
|
|
1,591
|
|
Net profit (loss) before income taxes
|
|
|
9,044
|
|
|
|
(15,156
|
)
|
Income tax expense
|
|
|
114
|
|
|
|
|
|
Net profit (loss)
|
|
|
8,930
|
|
|
|
(15,156
|
)
|
Total comprehensive income (loss) for the year
|
|
|
8,214
|
|
|
|
(14,246
|
)
|
Basic and diluted earnings (loss) per share
|
|
|
0.15
|
|
|
|
(0.25
|
)
|
30
The following table describes our cash and bonds, total assets,
total liabilities and total equity:
as at November 30, 2010 and 2009, on an
actual basis; and
|
|
|
|
|
as at November 30, 2010, on an as adjusted basis to give
effect to our sale of 11,000,000 common shares in this offering
at an assumed public offering price of US$5.08 per share
(which represents the U.S. dollar equivalent of the $5.01
closing price of our common shares as reported on the TSX on
February 18, 2011) and our receipt of estimated net
proceeds of US$50,231,000 ($49,528,000), after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
|
Consolidated
Statement of Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at November 30,
|
|
|
2010
|
|
2009
|
|
|
Actual
|
|
As Adjusted
|
|
Actual
|
|
|
(in thousands)
|
|
Cash and bonds
|
|
$
|
64,550
|
|
|
$
|
114,078
|
|
|
$
|
63,362
|
|
Total assets
|
|
|
71,651
|
|
|
|
121,179
|
|
|
|
69,154
|
|
Total liabilities
|
|
|
18,995
|
|
|
|
18,995
|
|
|
|
26,106
|
|
Total equity
|
|
|
52,656
|
|
|
|
102,184
|
|
|
|
43,048
|
|
31
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with
the section entitled Selected Consolidated Financial
Data and our audited consolidated financial statements and
related notes thereto included elsewhere in this prospectus. Our
audited consolidated financial statements have been prepared in
accordance with IFRS. The interim financial statements from
which the numbers under the heading Quarterly Financial
Information below have been derived have not been reviewed
by our auditors. To the extent any statements made in this
prospectus contain information that is not historical, these
statements are forward-looking and are subject to risks and
uncertainties, as activity, performance, or achievements could
differ materially from those projected in this prospectus and
depend on a number of factors, including the successful and
timely completion of clinical studies, the uncertainties related
to the regulatory process, and the commercialization of product
candidates thereafter. See Special Note Regarding
Forward-Looking Statements.
Operating
Results
Revenue
Our consolidated revenue for the year ended November 30,
2010 was $31,868,000, compared to $17,468,000 in 2009. The
increased revenue in fiscal 2010 was related to the milestone
payment of US$25,000,000 (C$25,000,000) received by us from EMD
Serono on November 30, 2010 associated with the
satisfaction of the condition of approval of
EGRIFTAtm
by the FDA. In fiscal 2009, a payment of US$10,000,000
(C$10,884,000) was received by us from EMD Serono following the
acceptance by the FDA of the Companys NDA for
EGRIFTAtm
in conformity with the collaboration and licensing agreement
with EMD Serono.
The initial payment of US$22,000,000 (C$27,097,000) received on
December 15, 2008, upon the closing of the transaction with
EMD Serono, has been deferred and is being amortized over its
estimated service period of four years on a straight-line basis.
For the year ended November 30, 2010, an amount of
$6,846,000 related to this transaction was recognized as
revenue. At November 30, 2010, the deferred revenue related
to this transaction recorded on the consolidated statement of
financial position amounted to $13,692,000.
We expect to generate revenue from sales of
EGRIFTAtm
to EMD Serono throughout fiscal 2011. We also expect to receive
royalties on sales of
EGRIFTAtm
in the United States by EMD Serono beginning in the second
quarter of fiscal 2011 upon receipt and confirmation of the
sales report relating to the previous quarter. The royalty rate
we receive from EMD Serono is based on the level of annual net
sales achieved, with the rate increasing as higher levels of net
sales are attained.
R&D
Activities
For the year ended November 30, 2010, consolidated research
and development (R&D) expenses, net of tax
credits, amounted to $14,064,000, compared to $20,810,000 in
2009, a decrease of 32.4%. The majority of R&D expenses
incurred in fiscal 2010 are related to
follow-up on
work derived from the regulatory filing with the FDA, notably
responding to the FDAs questions, and preparation for the
FDA Advisory Committee meeting. In parallel with the United
States FDA review, we continued to advance our regulatory filing
in Europe and to work on a new presentation of the existing
formulation of
EGRIFTAtm.
Furthermore, we are in the process of evaluating the initiation
of a new clinical program to develop tesamorelin for a new
indication. In our discovery and preclinical groups, we
continued to develop new peptides and to advance our preclinical
program for acute kidney injury (AKI). In fiscal
2009, the expenses incurred were principally associated with
completing the Phase 3 clinical trials evaluating tesamorelin in
HIV-associated lipodystrophy and the preparation of the NDA,
which was submitted to the FDA in May 2009. The significant
decline in R&D expenses was in accordance with our
projected R&D expenses for fiscal 2010. We expect the
amount of our R&D expenses for fiscal 2011 to be similar to
those of 2010.
Cost of
Sales
In fiscal 2010, we began producing through our third-party
suppliers inventories in anticipation of the launch of
EGRIFTAtm
in the United States. Cost of sales in fiscal 2010 related to
this activity amounted to $469,000 which includes a charge of
$192,000, in order to value the inventories at their net
realizable value. This write-down was due to raw materials that
were not originally bought under the conditions of our current
long-term procurement
32
agreements. Cost of sales also included unallocated costs
related to the production fees associated with the
start-up of
the manufacturing process. We expect the cost of sales to
increase significantly over the next fiscal year as sales of
EGRIFTAtm
grow and as we secure additional suppliers for raw materials and
finished products.
General and
Administrative Expenses
For the year ended November 30, 2010, general and
administrative expenses were $8,002,000, compared to $6,543,000
for the same period in fiscal 2009.
The higher expenses for the year ended November 30, 2010
are primarily due to the cost and expenses associated with
professional fees for the recruitment of the new President and
Chief Executive Officer, increased corporate communication
associated with the FDA Advisory Committee meeting and FDA
approval, and conversion of our financial statements to IFRS, as
well as costs and expenses related to variations in share-based
compensation expenses. The expenses for the year ended
November 30, 2009 include the costs associated with the
revision of our three-year business plan which were not repeated
in fiscal 2010.
Selling and
Market Development Expenses
For the year ended November 30, 2010, selling and market
development expenses were $2,670,000, compared to $6,862,000 in
fiscal 2009.
The selling and market development expenses in fiscal 2010 are
principally composed of business development expenses and market
research outside the United States and the costs of managing the
agreement with EMD Serono. In fiscal 2009, we incurred expenses
totaling $4,269,000 in connection with professional fees related
to the transaction with EMD Serono.
Net Financial
Income
For the year ended November 30, 2010, interest income was
$1,562,000 compared to $2,123,000 in fiscal 2009. The
year-over-year
decline is due to lower average cash positions and a decrease in
yield on our bond portfolio. Receipt of the
$25,000,000 milestone payment from EMD Serono in November
2010 strengthened the Companys cash position to a level
comparable to that of year-end 2009. Finance costs in fiscal
2010 were a gain of $493,000 compared to an expense of $661,000
in fiscal 2009. Finance costs in fiscal 2010 benefited from a
net foreign currency gain of $511,000 compared to a net foreign
currency loss of $635,000 in 2009.
Net
Results
Reflecting the changes in revenue and expenses described above,
we realized a net profit of $8,930,000 ($0.15 per share) for the
year ended November 30, 2010, compared to a net loss of
$15,156,000 ($0.25 loss per share) for the same period in fiscal
2009. The net profit included revenue of $31,846,000 related to
the collaboration and licensing agreement with EMD Serono.
Quarterly
Financial Information
The following table is a summary of the unaudited consolidated
operating results of the Company presented in accordance with
IFRS for the last eight quarters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
|
|
Q1
|
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
|
|
Q1
|
|
|
|
(in thousands of Canadian dollars, except per share
amounts)
|
|
|
Revenue
|
|
|
$26,717
|
|
|
|
$1,717
|
|
|
|
$1,717
|
|
|
|
$1,717
|
|
|
|
$1,718
|
|
|
|
$12,601
|
|
|
|
$1,717
|
|
|
|
$1,432
|
|
Net profit (net loss)
|
|
|
$21,299
|
|
|
|
$(3,357
|
)
|
|
|
$(4,771
|
)
|
|
|
$(4,241
|
)
|
|
|
$(4,654
|
)
|
|
|
$5,779
|
|
|
|
$(5,454
|
)
|
|
|
$(10,827
|
)
|
Basic and diluted earnings (loss) per share
|
|
|
$0.35
|
|
|
|
$(0.06
|
)
|
|
|
$(0.08
|
)
|
|
|
$(0.07
|
)
|
|
|
$(0.08
|
)
|
|
|
$0.10
|
|
|
|
$(0.09
|
)
|
|
|
$(0.18
|
)
|
As described above, the higher revenue in the third quarter of
2009 is related to the milestone payment of $10,884,000 received
from EMD Serono following the FDAs acceptance to file the
Companys NDA for
EGRIFTAtm.
The higher revenue in the fourth quarter of 2010 is related to
the receipt from EMD Serono of a milestone payment of
$25,000,000 following marketing approval of
EGRIFTAtm
by the FDA.
33
Fourth Quarter
Comparison
Consolidated revenue for the three-month period ended
November 30, 2010, amounted to $26,717,000, compared to
$1,718,000 for the same period in fiscal 2009. The higher
revenue in the three-month period ended November 30, 2010
is related to the milestone payment of $25,000,000 received at
the end of the fourth quarter, following marketing approval of
EGRIFTAtm
by the FDA in the United States.
Consolidated R&D expenses, net of tax credits, totaled
$3,172,000 for the fourth quarter of 2010, compared to
$4,212,000 for the same period in 2009, a decrease of 24.7%. The
R&D expenses incurred in 2009 principally included expenses
related to preparing for the FDA Advisory Committee meeting,
which was held on May 27, 2010. The R&D expenses
incurred in the fourth quarter of fiscal 2010 were mainly
related to managing responses to the FDAs questions and
the FDA approval process, in addition to the advancement of our
regulatory filing in Europe and on a new presentation of the
existing formulation of
EGRIFTAtm.
Furthermore, we are in the process of evaluating the initiation
of a new clinical program to develop tesamorelin for a new
indication. In our discovery and preclinical groups, we
continued to develop new peptides and to advance our preclinical
program in AKI.
General and administrative expenses were $2,036,000 in the
fourth quarter of 2010, compared to $1,563,000 for the same
period in 2009. The higher expenses for 2010 are principally
related to the conversion of our financial statements to IFRS
and FDA approval of
EGRIFTAtm
in the United States.
Selling and market development expenses amounted to $761,000 for
the fourth quarter of 2010, compared to $1,069,000 for the same
period in 2009. The sales and market development expenses in
fiscal 2010 are principally composed of business development
expenses outside the United States and the costs of performing
our obligations under the agreement with EMD Serono. The
increased costs in 2009 were principally due to market
development costs in Europe to increase the awareness of
lipodystrophy as a disease.
Consequently, we recorded a net profit for the three-month
period ended November 30, 2010, of $21,299,000 ($0.35 per
share), compared to a net loss of $4,654,000 ($0.08 per share)
for the same period in 2009.
In the three-month period ended November 30, 2010, cash
flows from operating activities, excluding changes in operating
assets and liabilities, was $22,037,000, compared to a use of
cash of $4,333,000 for the same period in 2009.
Liquidity and
Capital Resources
Our objective in managing capital is to ensure a sufficient
liquidity position to finance our research and development
activities, general and administrative expenses, working capital
and capital spending.
To fund our activities, we have relied primarily on public
offerings of common shares in Canada and private placements of
our common shares as well as on up-front payments and milestone
payments primarily associated with the agreement with EMD
Serono. When possible, we try to optimize our liquidity position
using non-dilutive sources, including investment tax credits,
grants and interest income.
For the year ended November 30, 2010, cash flow from
operating activities, excluding changes in operating assets and
liabilities, was $11,160,000 compared to a use of cash of
$13,547,000 in fiscal 2009. The cash flow generated in fiscal
2010 is principally related to payments received under the
agreement with EMD Serono as well as decreases in R&D
expenses and in selling and market development expenses.
At November 30, 2010, cash and bonds amounted to
$64,550,000 and tax credits and grants receivable amounted to
$332,000, for a total of $64,882,000.
At this time, apart from our unused $1,800,000 revolving credit
facility, we do not have any additional arrangements for
external debt financings, and are not certain whether any
proposed debt financing in the future, would be available on
acceptable terms, or available at all. We may seek additional
capital through the incurrence of debt, the issuance of equity
or other financing alternatives.
We invest our available cash in highly liquid fixed income
instruments from governmental, municipal and paragovernmental
bodies ($37,542,000 at November 30, 2010) as well as
corporate bonds with high credit ratings ($359,000 at
November 30, 2010).
34
In the year ended November 30, 2010, the Company received
share subscriptions amounting to $15,000 ($96,000 in fiscal
2009) for the issuance of 2,880 common shares (34,466 in
2009) in connection with the share purchase plan. Under the
terms of the agreement with EMD Serono, we issued 2,179,837
common shares for a cash consideration of US$8,000,000
(C$9,854,000) during the first quarter of 2009.
In fiscal 2010, our third-party suppliers began to manufacture
inventory of
EGRIFTAtm
for commercialization in the United States. We expect to
continue to build our inventory until we reach an adequate level
of finished goods to meet the needs of our partners and this
will significantly increase our working capital needs in fiscal
2011.
Contractual
Obligations
Commitments
We rent our headquarters and main office pursuant to a lease
expiring in April 2021. At November 30, 2010 and 2009, and
at December 1, 2008, the minimum payments required under
the terms of the non-cancellable lease were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
DECEMBER 1,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands of Canadian dollars)
|
|
|
Less than one year
|
|
|
55
|
|
|
|
340
|
|
|
|
816
|
|
Between one and five years
|
|
|
2,239
|
|
|
|
2,020
|
|
|
|
340
|
|
More than five years
|
|
|
3,943
|
|
|
|
4,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,237
|
|
|
|
6,576
|
|
|
|
1,156
|
|
Long-Term
Procurement Agreements
During and after the years ended November 30, 2010 and
2009, we entered into long-term procurement agreements with
third-party suppliers in anticipation of the commercialization
of
EGRIFTAtm.
Credit
Facility
We have a $1,800,000 revolving credit facility, bearing interest
at prime plus 0.5%. Under the term of the revolving credit
facility, the market value of investments held must always be
equivalent to 150% of amounts drawn under the facility. If the
market value falls below $7,000,000, we will provide the bank
with a first rank movable hypothec (security interest) of
$1,850,000 on securities judged satisfactory by the bank. As at
November 30, 2010, we did not have any borrowings
outstanding under this credit facility.
Post-Approval
Commitments
See Our Business
EGRIFTAtm Our
Lead Product.
Contingent
Liability
On July 26, 2010, we received a motion of authorization to
institute a class action lawsuit against the Company, a director
and a former executive officer (the Motion). This
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 certain
alleged adverse effects relating to the administration of
EGRIFTAtm.
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.
The Motion has not yet been heard by the Superior Court of
Quebec and a date has not been set for the hearing.
The Company has subscribed to insurance covering its potential
liability and the potential liability of its directors and
officers in the performance of all their duties for the Company
subject to a $200,000 deductible. At November 30, 2010, an
amount of $96,000 in legal fees had been accrued and included in
general and administrative expenses, of which $61,000 was paid
during the year and $35,000 remained in accounts payable and
accrued liabilities.
35
Off-Balance Sheet
Arrangements
We were not involved in any off-balance sheet arrangements for
the year ended November 30, 2010, with the exception of the
lease of our headquarters as described above.
Subsequent
Events
Distribution
and Licensing Agreements
On December 6, 2010, we announced the signing of a
distribution and licensing agreement with Sanofi covering the
commercial rights for
EGRIFTAtm
in Latin America, Africa, and the Middle East for the treatment
of excess abdominal fat in HIV-infected patients with
lipodystrophy.
Under the terms of the Agreement, we will sell
EGRIFTAtm
to Sanofi at a transfer price equal to the higher of a
percentage of Sanofis net selling price and a
predetermined floor price. We have retained all future
development rights to
EGRIFTAtm
and will be responsible for conducting research and development
for any additional potential indications. Sanofi will be
responsible for conducting all regulatory activities for
EGRIFTAtm
in the aforementioned territories, including applications for
approval in the different countries for the treatment of excess
abdominal fat in HIV-infected patients with lipodystrophy. We
also granted Sanofi an option to commercialize tesamorelin for
other indications in the territories mentioned above. If such
option is not exercised, or is declined, by Sanofi, we may
commercialize tesamorelin for such indications on our own or
with a third-party.
On February 3, 2011, we entered into a distribution and
licensing agreement with Ferrer covering the commercial rights
for
EGRIFTAtm
for the treatment of excess abdominal fat in HIV-infected
patients with lipodystrophy in Europe, Russia, South Korea,
Taiwan, Thailand and certain central Asian countries.
Under the terms of the Agreement, we will sell
EGRIFTAtm
to Ferrer at a transfer price equal to the higher of a
significant percentage of Ferrers net selling price and a
predetermined floor price. We have retained all development
rights to
EGRIFTAtm
for other indications and will be responsible for conducting
research and development for any additional programs. Ferrer
will be responsible for conducting all regulatory and
commercialization activities in connection with
EGRIFTAtm
for the treatment of excess abdominal fat in HIV-infected
patients with lipodystrophy in the territories subject to the
agreement. We will be responsible for the manufacture and supply
of
EGRIFTAtm
to Ferrer. We have the option to co-promote
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in the territories. Ferrer has the
option to enter into a co-development and commercialization
agreement using tesamorelin relating to any such new
indications. The terms and conditions of such a co-development
and commercialization agreement will be negotiated based on any
additional program chosen for development.
Deferred Share
Unit Plan
In December 2010, we adopted a deferred share unit plan
(Plan) to provide long-term incentive compensation
for our directors and executive officers. Under the Plan,
directors must receive their annual remuneration as a board
member in fully vested deferred share units (DSUs)
until they reach a percentage of their annual remuneration and,
once such percentage is attained, they have the option to elect
to receive part or all of their annual remuneration in DSUs.
Under the plan, executive officers have the option of receiving
all or a portion of their annual bonus in the form of
fully-vested DSUs. The units are only redeemable for cash when a
participant ceases to be an employee or member of the Board of
Directors. We manage the risk associated with the issuance of
the DSU by entering into a yearly forward contract with a
third-party. As at February 7, 2011, all of the
99,912 DSUs outstanding were covered by a prepaid forward
contract.
Stock Option
Plan
Between December 1, 2010 and February 7, 2011, the
Company granted 250,000 options at an exercise price of $5.65
per share. Also, 27,832 options were forfeited and expired at a
weighted exercise average price of $12.06 per share and 3,000
options were exercised at a weighted exercise average price of
$1.80 per share for a cash consideration of $5,000.
36
Financial Risk
Management
This section provides disclosure relating to the nature and
extent of our exposure to risks arising from financial
instruments, including credit risk, liquidity risk, currency
risk and interest rate risk, and how we manage those risks.
Credit
Risk
The Companys exposure to credit risk currently relates to
accounts receivable with only one customer (see note 4 of
the Audited Consolidated Financial Statements). Credit risk is
the risk of an unexpected loss if a customer or counterparty to
a financial instrument fails to meet its contractual
obligations. We regularly monitor credit risk exposure and take
steps to mitigate the likelihood of this exposure resulting in
losses.
Financial instruments other than cash and trade and other
receivables that potentially subject the Company to significant
credit risk consist principally of bonds. We invest our
available cash in highly liquid fixed income instruments from
governmental, paragovernmental and municipal bodies ($37,542,000
as at November 30, 2010) as well as from companies
with high credit ratings ($359,000 as at November 30,
2010). As at November 30, 2010, we were not exposed to any
credit risk over the carrying amount of the bonds.
Liquidity
Risk
Liquidity risk is the risk that we will not be able to meet our
financial obligations as they become due. We manage liquidity
risk through the management of our capital structure, as
outlined under Liquidity and Capital Resources. We
also manage liquidity risk by continuously monitoring actual and
projected cash flows. The Board of Directors
and/or the
Audit Committee reviews and approves our operating and capital
budgets, as well as any material transactions out of the
ordinary course of business.
We have adopted an investment policy in respect of the safety
and preservation of capital to ensure that our liquidity needs
are met. The instruments are selected with regard to the
expected timing of expenditures and prevailing interest rates.
The required payments on the contractual maturities of financial
liabilities, as well as the payments required under the terms of
the operating lease, as at November 30, 2010, are presented
in notes 20 and 23 of the Audited Consolidated Financial
Statements.
Currency
Risk
We are exposed to financial risk related to the fluctuation of
foreign exchange rates and the degree of volatility of those
rates. Currency risk is limited to the portion of our business
transactions denominated in currencies other than the Canadian
dollar, primarily revenues from milestone payments and expenses
for research and development incurred in U.S. dollars,
euros and pounds sterling (GBP). We do not use
derivative financial instruments to reduce our foreign exchange
exposure.
We manage currency risk by maintaining cash in U.S. dollars
on hand to support U.S. forecasted cash budgets for a
maximum
12-month
period. We do not currently view our exposure to the euro and
GBP as a significant foreign exchange risk due to the limited
volume of transactions conducted by the Company in these
currencies.
Exchange rate fluctuations for foreign currency transactions can
cause cash flow as well as amounts recorded in consolidated
statement of comprehensive income to vary from period to period
and not necessarily correspond to those forecasted in operating
budgets and projections. Additional earnings variability arises
from the translation of monetary assets and liabilities
denominated in currencies other than the Canadian dollar at the
rates of exchange at each consolidated statement of financial
position date, the impact of which is reported as foreign
exchange gain or loss in the consolidated statement of
comprehensive income. Given our policy on the management of our
U.S. foreign currency risk, we do not believe, a sudden
change in foreign exchange rates would impair or enhance our
ability to pay our U.S. dollar denominated obligations.
37
The following table provides significant items exposed to
currency risk as at November 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30, 2010
|
|
|
|
$US
|
|
|
EURO
|
|
|
GBP
|
|
|
|
(in thousands of dollars)
|
|
|
Cash
|
|
|
26,424
|
|
|
|
|
|
|
|
1
|
|
Trade and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(465
|
)
|
|
|
(26
|
)
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items exposed to currency risk
|
|
|
25,959
|
|
|
|
(26
|
)
|
|
|
(80
|
)
|
The following exchange rates applied during the year ended
November 30, 2010:
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|
|
|
|
|
|
|
|
|
|
AVERAGE RATE
|
|
|
REPORTING DATE RATE
|
|
|
US$ C$
|
|
|
1.0345
|
|
|
|
1.0266
|
|
EURO C$
|
|
|
1.3848
|
|
|
|
1.3326
|
|
GBP C$
|
|
|
1.6051
|
|
|
|
1.5969
|
|
In fiscal 2010, based on our foreign currency exposures noted
above, varying the above foreign exchange rates to reflect a 5%
strengthening of the Canadian dollar would have increased the
net profit as follows, assuming that all other variables
remained constant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$US
|
|
EURO
|
|
GBP
|
|
|
(in thousands of dollars)
|
|
Increase in net profit
|
|
|
1,298
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
An assumed 5% weakening of the Canadian dollar would have had an
equal but opposite effect on the above currencies to the amounts
shown above, assuming that all other variables remain constant.
Interest Rate
Risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
Our short-term bonds are invested at fixed interest rates
and/or
mature in the short-term. Long-term bonds are also instruments
that bear interest at fixed rates. The risk that we will realize
a loss as a result of a decline in the fair value of our bonds
is limited because these investments, although they are
classified as available for sale, are generally held to
maturity. The unrealized gains or losses on bonds are recorded
in accumulated other comprehensive income.
Based on the value of our short and long-term bonds at
November 30, 2010, an assumed 0.5% decrease in market
interest rates would have increased the fair value of these
bonds and the accumulated other comprehensive income by
approximately $336,000; an assumed increase in interest rate of
0.5% would have an equal but opposite effect, assuming that all
other variables remained constant.
Cash bears interest at a variable rate. Trade and other
receivables, accounts payable and accrued liabilities bear no
interest.
Based on the average value of variable interest-bearing cash
during year ended November 30, 2010 ($3,219,000), an
assumed 0.5% increase in interest rates during such period would
have increased the future cash flow and the net profit by
approximately $16,000; an assumed decrease of 0.5% would have
had an equal but opposite effect.
38
Financial
Instruments
We have determined that the carrying values of our short-term
financial assets and liabilities, including cash, trade and
other receivables as well as accounts payable and accrued
liabilities, approximate their fair value because of the
relatively short period to maturity of the instruments.
Bonds are stated at estimated fair value, determined by inputs
that are primarily based on broker quotes at the reporting date
(level 2 inputs see note 22
Determination of fair values).
Critical
Accounting Estimates
Use of
Estimates and the Exercise of Judgment
The preparation of our Audited Consolidated Financial Statements
in conformity with IFRS requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Information about critical judgments in applying accounting
policies and assumption and estimation uncertainties that have
the most significant effect on the amounts recognized in the
consolidated financial statements is included in the following
notes to the Audited Consolidated Financial Statements:
Note 4 Revenue and deferred revenue
Note 15 (iv) Stock option plan
Note 16 Income taxes
Note 18 Contingent liability
Other areas of judgement and uncertainty relate to the
estimation of accruals for clinical trial expenses, the
recoverability of inventories, the measurement of the amount and
assessment of the recoverability of tax credits and grants
receivable and capitalization of development expenditures.
Reported amounts and note disclosure reflect the overall
economic conditions that are most likely to occur and the
anticipated measures management intends to take. Actual results
could differ from those estimates.
The above estimates and assumptions are reviewed regularly.
Revisions to accounting estimates are recognized in the period
in which the estimates are revised and in any future periods
affected.
Conversion to
IFRS
In February 2008, the Accounting Standards Board of Canada
(AcSB) announced that accounting standards in
Canada, as used by public companies, would converge with 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. In
the fourth quarter, we filed a request to adopt IFRS two years
in advance of the date required under the AcSB, using
December 1, 2008 as the date of transition and
December 1, 2009 as the changeover date. Our request was
granted and as a result, the consolidated financial statements
for the year ended November 30, 2010 are our first annual
financial statements prepared in conformity with IFRS.
Because we had previously filed financial statements and
MD&As for the first, second and third quarters of 2010 with
comparisons to 2009 in accordance with Canadian GAAP, these
statements were restated and re-filed on February 8, 2011
to reflect our adoption of IFRS. Periods prior to
December 1, 2008 have not been restated.
In preparing these first IFRS financial statements, we used the
IFRS accounting policies in effect as at November 30, 2010,
including IFRS 1 First-time Adoption of
International Financial Reporting Standards (IFRS
1). IFRS 1 provides guidance for an entitys initial
adoption of IFRS and outlines that, in general, an entity
applies the principles under IFRS retrospectively with
adjustments arising on conversion from Canadian GAAP to IFRS
being directly recognized in retained earnings as of the
beginning of the first comparative financial statements
presented. IFRS 1 also requires companies adopting IFRS to
reconcile equity and net earnings from the previously reported
Canadian GAAP amounts to the restated IFRS amounts. Our
reconciliation of equity under Canadian GAAP as at
December 1, 2008, the date of transition, and as at
November 30, 2009 to the restated IFRS amounts are included
39
in note 27 of the consolidated financial statements, as is
the reconciliation of comprehensive income for the year-ended
November 30, 2009.
IFRS 1 also provides certain optional exemptions from
retrospective application of certain IFRS requirements as well
as mandatory exceptions which prohibit retrospective application
of standards.
We elected to apply the following optional exemptions from full
retrospective application:
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|
(i)
|
IFRS 2 Share-based Payment: IFRS 1 encourages
the application of IFRS 2, Share-based Payment provisions
to equity instruments granted on or before November 7,
2002, but permits the application only to equity instruments
granted after November 7, 2002 that were not vested by the
transition date. As permitted by this exemption, the Company
applied IFRS 2 only to equity instruments granted after
November 7, 2002 that were not vested by December 1,
2008.
|
(ii)
|
Designation of financial assets and financial liabilities
exemption: we elected to re-designate cash from the held for
trading category to loans and receivables.
|
We also followed the mandatory exemptions applicable to the
Company as described below:
Estimates Hindsight cannot be used to create
or revise estimates. Estimates previously made under Canadian
GAAP cannot be revised for application of IFRS except where
necessary to reflect any difference in accounting policies.
Impact of IFRS
on the Companys Financial Statements
The adoption of IFRS resulted in some changes to our accounting
policies that were applied in the recognition, measurement and
disclosure of balances and transactions in our financial
statements. However, none of the changes to our accounting
policies resulted in significant changes to line items within
our financial statements.
The following provides a summary of our evaluation of important
changes to accounting policies in key areas:
IFRS 2,
Share-Based Payment (IFRS 2)
Under IFRS, when stock option awards vest gradually, each
tranche is to be considered as a separate award, while under
Canadian GAAP, companies can make a policy choice to consider
gradually vested tranches as a single award. Similarly, the IFRS
standard requires that forfeiture estimates be established at
the time of the initial fair value assessment of share-based
payments rather than to account for the forfeitures as they
occur. Therefore, the compensation expense will have to be
recognized over the expected term of each tranche and take into
account the impact of the differences in accounting for
forfeitures. As a result of this change, an amount of $175,000
was recorded to deficit at the transition date, with the
counterpart to contributed surplus.
IAS 36,
Impairment of Assets (IAS 36)
Under Canadian GAAP impairment standards for non-financial
assets, a write-down to estimated fair value is recognized if
the estimated undiscounted future cash flows from an asset or
group of assets are less than their carrying value. IAS 36
requires a write-down to be recognized if the recoverable
amount, determined as the higher of the estimated fair value
less costs to sell or value in use, is less than carrying value.
We performed impairment testing as of December 1, 2008 and
concluded that no impairment charge was required under IFRS. No
impairment indicators were identified for the period between the
transition date and November 30, 2009 and November 30,
2010. IAS 36 also permits the reversal of certain impairment
charges where conditions have changed. We reviewed past
impairment charges and concluded that there was no justification
for reversal of past impairment charges.
IAS 1,
Presentation of Financial Statements (IAS
1)
Financial statement presentation is addressed in conjunction
with the related IFRS standards. Certain additional disclosures
were required in the notes to the financial statements and the
statement of comprehensive income was modified to reflect a
presentation by function. The reclassifications required as a
result of this change are described in note 27 (c) of
the consolidated financial statements.
Other
Standards
Our examination of all other standards, including for example,
IAS 21 The Effects of Changes in Foreign Exchange
Rates, IAS 37 Provisions, Contingent Liabilities and
Contingent Assets, and IAS 18 Revenue, revealed no
significant adjustment was necessary other than enhanced
disclosures.
40
Note 27 of the consolidated financial statements for the
year ended November 30, 2010 contains a detailed
description of our conversion to IFRS, including a
line-by-line
reconciliation of our financial statements previously prepared
under Canadian GAAP to those under IFRS as at November 30,
2009 and December 1, 2008.
Impact on the
Business
The impact of the conversion to IFRS on the Company was minimal
and therefore resulted in a limited number of adjustments. Our
systems easily accommodated the required changes. Our internal
controls and disclosure controls and procedures did not require
significant modification as a result of its conversion to IFRS.
Furthermore, there was no impact on our contractual arrangements
or compliance thereto.
Impact on
Information Systems and Technology
The transition had minimal impacts on our information systems.
The areas where information systems were most impacted were
minor modifications to certain general ledger accounts,
sub-ledgers
and end-user reports to accommodate IFRS accounting adjustments,
recording, and heightened disclosures.
Impact on
Internal Control over Financial Reporting and Disclosure
Controls and Procedures
Our internal controls over financial reporting were also not
significantly affected by the transition to IFRS. The IFRS
differences required presentation and process changes to report
more detailed information in the notes to the financial
statements, as well as certain changes to the recognition and
measurement practices. Disclosure controls and procedures were
adapted to take into consideration the changes in recognition,
measurement and disclosure practices but the impact was minimal
as well.
Impact on
Financial Reporting Expertise
Training and education was provided to all members of the
finance team who are directly affected by the transition to
IFRS. This training focused mainly on the process changes
required and an overview of the reasons behind the changes from
a standards perspective.
New Accounting
Policies
Certain pronouncements were issued by the IASB or International
Financial Reporting Interpretation Committee that are mandatory
for annual periods beginning after January 1, 2010 or later
periods. Many of these updates are not applicable or are
inconsequential to us and have been excluded from the discussion
below. The remaining pronouncements are being assessed to
determine their impact on our results and financial position:
Annual
Improvements to IFRS
The IASBs improvements to IFRS published in April 2009
contain fifteen amendments to twelve standards that result in
accounting changes for presentation, recognition or measurement
purposes largely for annual periods beginning on or after
January 1, 2010, with early adoption permitted. These
amendments were considered by the Company and deemed to be not
applicable to the Company other than for the amendment to IAS
17 Leases relating to leases which include both land
and buildings elements. In this case, the Company early adopted
this amendment.
The IASBs improvements to IFRS contain seven amendments
that result in accounting changes for presentation, recognition
or measurement purposes. The most significant features of the
IASBs annual improvements project published in May 2010
are included under the specific revisions to standards discussed
below.
Revision to IFRS 3, Business Combinations:
Effective for annual periods beginning on or after July 1,
2010 with earlier adoption permitted.
Clarification on the following areas:
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|
|
|
|
the choice of measuring non-controlling interests at fair value
or at the proportionate share of the acquirees net assets
applies only to instruments that represent present ownership
interests and entitle their holders to a proportionate share of
the net assets in the event of liquidation. All other components
of non-controlling interest are measured at fair value unless
another measurement basis is required by IFRS.
|
|
|
|
application guidance relating to the accounting for share-based
payments in IFRS 3 applies to all share-based payment
transactions that are part of a business combination, including
un-replaced awards (i.e., unexpired awards over the acquiree
shares that remain outstanding rather than being replaced by the
acquirer) and voluntarily replaced share-based payment awards.
|
41
Amendment to IFRS 7, Financial Instruments: Disclosures:
Effective for annual periods beginning on or after
January 1, 2011 with earlier adoption permitted.
Multiple clarifications related to the disclosure of financial
instruments and in particular in regards to transfers of
financial assets.
(iii) IAS 1:
Amendment to IAS 1, Presentation of Financial Statements:
Effective for annual periods beginning on or after
January 1, 2011 with earlier adoption permitted.
Entities may present the analysis of the components of other
comprehensive income either in the statement of changes in
equity or within the notes to the financial statements.
(iv) IAS 27:
Amendment to IAS 27, Consolidated and Separate Financial
Statements:
Effective for annual periods beginning on or after
January 1, 2011 with earlier adoption permitted.
The 2008 revisions to this standard resulted in consequential
amendments to IAS 21, The Effects of Changes in Foreign
Exchange Rates, IAS 28, Investments in Associates,
and IAS 31, Interests in Joint Ventures. IAS 27 now
provides that these amendments are to be applied prospectively.
Amendment to IAS 34, Interim Financial Reporting:
Effective for annual periods beginning on or after
January 1, 2011 with earlier adoption permitted.
The amendments place greater emphasis on the disclosure
principles for interim financial reporting involving significant
events and transactions, including changes to fair value
measurements and the need to update relevant information from
the most recent annual report.
New or Revised
Standards and Interpretations
In addition, the following new or revised standards and
interpretations have been issued but are not yet applicable to
the Company:
Amendments to IAS 24, Related Party Disclosures:
Effective for annual periods beginning on or after
January 1, 2011 with earlier adoption is permitted.
There are limited differences in the definition of what
constitutes a related party; however, the amendment requires
more detailed disclosures regarding commitments.
IFRS 8, Operating Segments:
Effective for annual periods beginning on or after
January 1, 2010. Requires purchase information about
segment assets.
New standard IFRS 9, Financial Instruments:
Effective for annual periods beginning on or after
January 1, 2013 with earlier adoption permitted.
As part of the project to replace IAS 39, Financial
Instruments: Recognition and Measurement, this standard
retains but simplifies the mixed measurement model and
establishes two primary measurement categories for financial
assets. More specifically, the standard:
|
|
|
|
|
deals with classification and measurement of financial assets
|
|
|
|
establishes two primary measurement categories for financial
assets: amortized cost and fair value
|
|
|
|
classification depends on entitys business model and the
contractual cash flow characteristics of the financial asset
|
|
|
|
eliminates the existing categories: held to maturity, available
for sale, and loans and receivables.
|
Certain changes were also made regarding the fair value option
for financial liabilities and accounting for certain derivatives
linked to unquoted equity instruments.
42
Outstanding Share
Data
At February 7, 2011, the common shares issued and
outstanding were 60,515,764 while outstanding options granted
under the stock option plan were 3,068,306.
Disclosure
Controls and Procedures and Internal Control Over Financial
Reporting
As at November 30, 2010, an evaluation of the design and
operating effectiveness of our disclosure controls and
procedures, as defined in the rules of Canadian Securities
Administrators, was carried out. Based on that evaluation, the
President and Chief Executive Officer and the Senior Executive
Vice-President and Chief Financial Officer concluded that the
design and operating effectiveness of those disclosure controls
and procedures were effective.
Also as November 30, 2010, an evaluation of the design and
operating effectiveness of internal controls over financial
reporting, as defined in the rules of the Canadian Securities
Administrators, was carried out to provide reasonable assurance
regarding the reliability of financial reporting and financial
statement compliance with IFRS. Based on that evaluation, the
President and Chief Executive Officer and the Senior Executive
Vice-President and Chief Financial Officer concluded that the
design and operating effectiveness of internal controls over
financial reporting were effective.
These evaluations were based on the framework established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, a recognized control model, and the requirements of
Multilateral Instrument
52-109 of
the Canadian Securities Administrators. A disclosure committee
comprised of members of senior management assists the President
and Chief Executive Officer and the Senior Executive
Vice-President and Chief Financial Officer in their
responsibilities.
All control systems, no matter how well designed, have inherent
limitations, including the possibility of human error and the
circumvention or overriding of the controls or procedures. As a
result, there is no certainty that our disclosure controls and
procedures or internal control over financial reporting will
prevent all errors or all fraud. There were no changes in our
internal controls over financial reporting that occurred during
the year ended November 30, 2010 that have materially
affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
43
OUR
BUSINESS
Overview
We are a specialty pharmaceutical company that discovers and
develops innovative therapeutic peptide products with an
emphasis on GRF peptides. Our strategy is to leverage our
expertise in the field of metabolism and GRF peptides to address
serious health disorders while remaining actively involved in
the commercialization of our future products. Our first product,
EGRIFTAtm
(tesamorelin for injection), was approved by the FDA in November
2010.
EGRIFTAtm
is currently the only approved therapy for the reduction of
excess abdominal fat in HIV-infected patients with lipodystrophy.
We estimate that excess abdominal fat in HIV-infected patients
affects approximately 29% of HIV-infected patients treated with
antiretroviral therapies and approximately 12% of untreated
patients. In HIV-infected patients, lipodystrophy may be caused
by the viral infection itself, the use of antiretroviral
therapy, or both. Lipodystrophy is characterized by
abnormalities in the production and storage of fat, which lead
to excess abdominal fat, or lipohypertrophy, and the loss of fat
tissue, or lipoatrophy, generally occurring in the limbs and
facial area.
Excess abdominal fat in HIV-infected patients is associated with
significant health risks beyond the mortality risk of the HIV
infection itself. These health risks include metabolic
disturbances such as hyperlipidemia, an increase in the amount
of fat in the blood (such as triglycerides and cholesterol), and
hyperglycemia, an increase in the amount of sugar in the blood,
characterized by insulin resistance, both of which lead to
increased risks of cardiovascular disease and diabetes. While
there is evidence that suggests that lipoatrophy may be reduced
with certain newer HIV therapies, we are not aware of any
evidence showing that any currently-marketed HIV therapy reduces
lipohypertrophy or the incidence of lipohypertrophy.
EGRIFTAtm
is currently marketed exclusively in the United States by EMD
Serono, an affiliate of Merck KGaA, pursuant to a collaboration
and licensing agreement. We have also recently entered into
distribution and licensing agreements for
EGRIFTAtm
with Sanofi granting Sanofi the exclusive commercialization
rights in Latin America, Africa and the Middle East and with
Ferrer granting Ferrer the exclusive commercialization rights in
Europe, Russia, South Korea, Taiwan, Thailand and certain
central Asian countries. Using data compiled by the CDC and
WHO/UNAIDS, we estimate that in 2012, there will be
approximately 190,000 HIV-infected patients treated with
antiretroviral therapies with lipohypertrophy in the United
States, 170,000 in Europe, and 180,000 in Latin America, or
540,000 patients in total. We also estimate that in 2012,
there will be an additional 47,000 HIV-infected untreated
patients with lipohypertrophy in the United States, 42,000 in
Europe, and 28,000 in Latin America, or an additional
117,000 patients in total.
In January 2011, EMD Serono launched
EGRIFTAtm
in the United States. EMD Serono is executing a launch program
that consists of medical education, advertising, marketing and
promotion through their experienced sales force, and supporting
market access through co-pay programs, reimbursement education
and support for payors. We believe
EGRIFTAtm
will achieve a high degree of physician and payor acceptance
driven by our products safety and efficacy, the lack of
approved alternative therapies for these patients and the
prominent medical and social need to treat HIV/AIDS patients.
EGRIFTAtm
is the trade name used for our first marketed product using our
most advanced compound, tesamorelin. Tesamorelin is a GRF
analogue that stimulates the synthesis and pulsatile release of
endogenous growth hormone. Tesamorelin was synthesized using our
internally-developed peptide stabilization method. This method
increases a proteins resistance to enzymatic degradation,
which prolongs its duration of action and enhances its
effectiveness in clinical use. We believe this compound and
future GRF analogues that we are developing can be used in a
number of additional high-value indications. Clinical data have
shown tesamorelin to have both lipolytic (fat-burning) and
anabolic (muscle-building) properties. Our initial development
of
EGRIFTAtm
focused on the lipolytic properties of the compound.
Tesamorelins anabolic properties have led us to pursue its
development for muscle wasting in COPD patients as our second
indication. COPD is characterized by progressive airflow
obstruction due to chronic bronchitis or emphysema leading in
certain cases to muscle wasting, a decrease of muscle mass and
deterioration in functionality. We have completed a Phase 2
trial which demonstrated a statistically significant increase in
lean body mass. Based upon these trial results, we intend to
randomize our first patient in a new Phase 2 clinical study in
the second half of
44
2011. Based on available market data, we estimate that in 2009
the number of diagnosed COPD patients with muscle wasting was
approximately 3.1 million in the United States, France,
Germany, Italy, United Kingdom, Spain and Japan.
To solidify our leadership position in the field of GRF
therapeutics, we have embarked on a program to discover new
generations of GRF analogues. We believe that GRF compounds have
the potential to improve patient outcome in many high-value
indications, such as wasting in chronic heart failure and renal
failure, as well as growth hormone deficiency with abdominal
obesity. We also believe that we can improve the route of
administration of GRF peptides to make them quicker and easier
to use for patients. Our early-stage pipeline also includes
compounds for the treatment of AKI and certain cancers.
Our
Strategy
Our goal is to leverage our expertise in the field of metabolism
and GRF peptides to become a leading specialty pharmaceutical
company with the necessary infrastructure to take innovative
therapeutic products from research and development to full
commercialization in worldwide markets. Key elements of this
strategy include:
Maximize the
Global Commercial Potential of
EGRIFTAtm
In order to maximize the commercial potential of
EGRIFTAtm
we have entered into licensing agreements with EMD Serono,
Sanofi and Ferrer for different territories around the world. We
intend to continue to support our commercial partners to ensure
the successful commercialization of
EGRIFTAtm
in their respective territories. This will include regulatory
support, manufacture and supply of
EGRIFTAtm
and potential co-promotion.
We have developed a new presentation of
EGRIFTAtm
which is quicker and easier to use than its current
presentation. We are also developing a new and more concentrated
formulation of tesamorelin. Compared to our current formulation,
this new formulation requires a smaller volume of injection and
is expected to be stable at room temperature. In addition, this
new formulation could potentially be used with a new delivery
device such as a pen, to facilitate patient self-administration.
We expect the new presentation and the new formulation will have
a positive impact on our manufacturing capacity and will
significantly reduce our unit costs.
Develop
Tesamorelin for Muscle Wasting in COPD
We will be conducting a new clinical program in muscle wasting
in COPD. We have demonstrated in a first Phase 2 clinical trial
that tesamorelin has increased muscle mass in COPD patients. We
believe tesamorelin could improve patients functionality
in daily activities and address a significant unmet need in a
large and potentially lucrative market.
Solidify Our
Position as a Leader in the Field of Novel GRF
Products
We will leverage our expertise in peptide discovery, drug
development and regulatory affairs to continue our development
of new peptides, primarily GRF peptides, in order to expand our
portfolio of product candidates and solidify our position as a
leader in this field.
Be Actively
Involved in the Commercialization of Our Products
We intend to retain commercial rights to our future products for
indications and territories where we believe we can effectively
market them. We may also co-promote
EGRIFTAtm
in certain territories and tesamorelin in other indications.
Pursue
External Growth Opportunities
In addition to developing products internally, we will
opportunistically pursue in-licensing arrangements or
acquisitions of complementary businesses, compounds or products.
We will also identify and evaluate commercial growth
opportunities that may include collaborations with drug delivery
companies.
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Our Product and
Product Candidates
The following table provides an overview of our product and
product candidates and their current stages of development:
EGRIFTAtm
Our Lead Product
EGRIFTAtm
induces the release of growth hormone which causes a reduction
in excess abdominal fat (lipohypertrophy) in HIV-infected
patients without reducing or interfering with subcutaneous fat,
and, as such, has no clinically significant effect on undesired
loss of subcutaneous fat (lipoatrophy).
EGRIFTAtm
is currently available in the United States as a once-daily two
unit dose (two vials, each containing 1 mg of tesamorelin)
of sterilized lyophilized powder to be reconstituted with
sterile water for injection. To administer
EGRIFTAtm,
1 ml is retrieved from each vial into one syringe to prepare a
single 2 ml patient self-administered subcutaneous injection.
EGRIFTAtm
is injected under the skin into the abdomen once a day.
For the purposes of FDA approval,
EGRIFTAtm
was evaluated in two clinical trials involving 816 HIV-infected
adult men and women with lipodystrophy and excess abdominal fat.
In both studies, patients treated daily with
EGRIFTAtm
experienced greater reductions in abdominal fat as measured by
CT scan and greater improvements in belly appearance distress,
compared with patients receiving another injectable solution
(placebo). Once the treatment was terminated, the patients
condition reversed to its status prior to the beginning of the
treatment. The most commonly reported adverse effects in the
studies included reactions due to the release of endogenous
hormone, such as joint pain (arthralgia), pain in the
extremities, swelling in the lower limbs and muscle pain
(myalgia), injection site reactions such as skin redness
(erythema), itching (pruritis) and pain and clinically
manageable changes in blood sugar control. Our clinical trials
did not seek to measure any potential cardiovascular benefits of
EGRIFTAtm
on cardiovascular events.
In connection with its approval, the FDA has required the
following three post-approval commitments:
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to develop a single vial presentation of the existing
formulation of
EGRIFTAtm. We
have developed a new presentation of
EGRIFTAtm
which is quicker and easier to use than its current
presentation. In the new presentation,
EGRIFTAtm
will be available as a single unit dose (one vial containing
2 mg of tesamorelin) of sterile, lyophilized powder to be
reconstituted with sterile water for injection. The FDA requires
that this new presentation be available by November 2013 and we
expect it to be commercially available before that date. The
development of the new presentation is complete and the dossier
is ready for regulatory submission.
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to conduct a long-term observational safety study using
EGRIFTAtm. The
purpose of the long-term observational study required by the FDA
is to evaluate the safety of long-term administration of
EGRIFTAtm.
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to conduct a Phase 4 clinical trial using
EGRIFTAtm. The
primary purpose of the Phase 4 clinical trial is to assess
whether
EGRIFTAtm
increases the incidence or progression of diabetic retinopathy
in diabetic HIV-infected patients with lipodystrophy and excess
abdominal fat.
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The FDA requires that the proposed protocols for the long-term
observational safety study and Phase 4 clinical trial be
submitted by the second quarter of 2011. Under the terms of our
collaboration and licensing agreement, EMD Serono is responsible
for finalizing and obtaining approval of such protocols. We will
continue to support EMD Serono in developing and finalizing such
protocols.
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Lipodystrophy
Lipodystrophy is characterized by abnormalities in the
production and storage of fat. It has two components:
lipohypertrophy, abnormal and excessive fat accumulation, and
lipoatrophy, the noticeable, localized loss of fat tissue under
the skin. In patients with lipohypertrophy, fat accumulation
occurs mostly around the waist and may also occur in other
regions, including breast tissue and in dorsocervical tissues in
the neck, resulting in a buffalo hump. Excess fat
also appears as lipomas, or benign tumors composed of fat cells.
In patients with lipoatrophy, the loss of fat tissue generally
occurs in the limbs and facial area.
Excess abdominal fat in HIV-infected patients is associated with
significant health risks beyond the mortality risk of the HIV
infection itself. These health risks include metabolic
disturbances such as hyperlipidemia, an increase in the amount
of fat in the blood (such as triglycerides and cholesterol), and
hyperglycemia, an increase in the amount of sugar in the blood,
characterized by insulin resistance, both of which lead to
increased risks for cardiovascular disease and diabetes.
In HIV-infected patients, lipodystrophy may be caused by the
viral infection itself, the use of antiretroviral therapy, or
both. While there is evidence that suggests that lipoatrophy may
be reduced with certain newer HIV therapies, we are not aware of
any evidence showing that any currently-marketed HIV therapy
reduces lipohypertrophy or the incidence of lipohypertrophy.
Recent data suggest that different pathophysiological mechanisms
are involved in the development of lipohypertrophy and
lipoatrophy. The most common statistically significant
independent risk factors identified for lipohypertrophy are
duration of antiretroviral therapy, markers of disease severity
and protease inhibitor use. Other factors include age, genetics,
and gender.
Market
Opportunity
Based on our analysis of 20 independent medical studies
published from 2000 to 2004, we estimate that excess abdominal
fat in HIV-infected patients affects approximately 29% of
HIV-infected patients treated with antiretroviral therapies.
According to a separate 2003 independent medical study, we
estimate that an additional 12% of untreated HIV-infected
patients are also affected by excess abdominal fat.
Based on the above-mentioned data, we have identified the
following potential markets for
EGRIFTAtm.
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United States. The United States market represents
the largest commercial opportunity for
EGRIFTAtm.
We estimate the prevalence of HIV/AIDS in the United States will
rise to 1.3 million people in 2012. Of this amount,
approximately 650,000 people will be treated for HIV/AIDS
and, of those patients treated, approximately 190,000 will
suffer from excess abdominal fat. In addition, approximately
47,000 untreated patients will suffer from excess abdominal fat.
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Europe. We estimate the prevalence of HIV/AIDS in
Europe will rise to 1.4 million people in 2012. Of this
amount, approximately 590,000 people will be treated for
HIV/AIDS and, of those patients treated, approximately 170,000
will suffer from excess abdominal fat. In addition,
approximately 42,000 untreated patients will suffer from excess
abdominal fat.
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Latin America. We estimate the prevalence of
HIV/AIDS in Latin America will rise to 2.2 million people
in 2012. Of this amount, approximately 630,000 people will
be treated for HIV/AIDS and, of those patients treated,
approximately 180,000 will suffer from excess abdominal fat.
This number is proportionately lower than the other territories
due to a lower percentage of diagnosed and treated patients.
With approximately 60,000 treated patients who will suffer
from excess abdominal fat, Brazil offers the largest market in
Latin America for
EGRIFTAtm.
In addition, approximately 28,000 untreated patients will suffer
from excess abdominal fat.
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We estimate that the total number of patients diagnosed with and
treated for HIV/AIDS who will suffer from excess abdominal fat
in our primary target markets will be 540,000 in 2012. We
estimate that an additional 117,000 untreated patients may
develop lipohypertrophy in such markets.
The foregoing information is based on historical data from the
CDC for the United States, and WHO/UNAIDS for Europe and Latin
America. We used the historical growth rates derived from that
data to estimate the prevalence of HIV/AIDS in 2012.
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EGRIFTAtm
Commercialization Activities
We are working closely with EMD Serono to support the
commercialization of
EGRIFTAtm.
We are also working closely with Sanofi and Ferrer to obtain
regulatory approval for and the subsequent commercialization of
EGRIFTAtm.
Each of our commercial partners were chosen due to their
commercial and regulatory capabilities in their respective
territories.
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EMD Serono
Agreement United States
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On October 28, 2008, we entered into a collaboration and
licensing agreement granting EMD Serono the exclusive
commercialization rights to
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in the United States.
Under the terms of the agreement, EMD Serono has the exclusive
right to conduct
EGRIFTAtm
commercialization activities in the United States. We are
responsible for the manufacturing and supply of
EGRIFTAtm
and for the development of a new formulation. The agreement also
entitles us to conduct additional clinical programs to develop
tesamorelin for potential additional indications. EMD Serono has
the option to commercialize products resulting from such
additional clinical programs in the United States. If EMD Serono
exercises this option, it will pay half of the development and
regulatory costs incurred and to be incurred by us in connection
with such additional clinical programs. If EMD Serono decides
not to exercise its option, we have the right to commercialize
tesamorelin for such indications on our own or with third
parties. We also have the option to co-promote any product
resulting from such clinical programs under terms and conditions
to be agreed with EMD Serono. This agreement extends until the
expiration of the last valid claim based upon a patent right
(including patent applications) controlled by us in the United
States covering
EGRIFTAtm
or any other product based on an additional indication for
tesamorelin that EMD Serono has elected to commercialize under
the agreement.
We may receive up to US$215 million in upfront and
milestone payments in addition to royalties and revenues from
the sale of
EGRIFTAtm
to EMD Serono. To date, we have received US$65 million
which includes an upfront payment and regulatory milestone
payments of US$57 million and an equity investment of
US$8 million. Future milestone payments will be made based
on the achievement of certain sales milestones. We will also be
entitled to receive royalties at an increasing rate based on
achieving specified levels of annual net sales of
EGRIFTAtm
in the United States.
We made our first delivery of
EGRIFTAtm
to EMD Serono on December 13, 2010. In January 2011, EMD
Serono launched
EGRIFTAtm
in the United States. EMD Serono is executing a launch program
that consists of increasing disease awareness through medical
education to doctors, patient advocacy and advertising,
marketing and promotion through their experienced sales force,
and supporting market access through patient support, co-pay
programs, reimbursement education and support for payors.
EMD Serono is responsible for establishing the sale price of
EGRIFTAtm
in the United States. The wholesale acquisition cost has been
set at US$23,900 per patient per year. We expect to receive our
first royalty payments in the second quarter of 2011.
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Sanofi
Agreement Latin America, Africa and the Middle
East
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On December 6, 2010, we entered into a distribution and
licensing agreement granting Sanofi, a subsidiary of
Sanofi-aventis S.A., the exclusive commercialization rights to
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in Latin America, Africa and the
Middle East.
Under the terms of the agreement, we will sell
EGRIFTAtm
to Sanofi at a transfer price equal to the higher of a
percentage of Sanofis net selling price and a
predetermined floor price. Sanofi will be responsible for
conducting all regulatory and commercialization activities for
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in the territories subject to the
agreement. We will be responsible for the manufacture and supply
of
EGRIFTAtm
to Sanofi. We have retained all development rights to
EGRIFTAtm
for other indications and will be responsible for conducting
development activities for any additional potential indications.
We also granted Sanofi an option to commercialize tesamorelin
for other indications in the territories mentioned above. If
such option is not exercised, or is declined, by Sanofi, we may
commercialize tesamorelin for such indications on our own or
with a third party. The initial term of this agreement extends
until December 2020.
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Ferrer
Agreement Europe, Russia, South Korea, Taiwan,
Thailand and certain central Asian countries
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On February 3, 2011, we entered into a distribution and
licensing agreement granting Ferrer the exclusive
commercialization rights to
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in Europe, Russia, South Korea,
Taiwan, Thailand and certain central Asian countries.
Under the terms of the agreement, we will sell
EGRIFTAtm
to Ferrer at a transfer price equal to the higher of a
percentage of Ferrers net selling price and a
predetermined floor price. Ferrer will be responsible for
conducting all regulatory and commercialization activities in
connection with
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in the territories subject to the
agreement. We will be responsible for the manufacture and supply
of
EGRIFTAtm
to Ferrer. We have retained all development rights to
EGRIFTAtm
for other indications and will be responsible for conducting
development activities for any additional potential indications.
We have the option to co-promote
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in the territories. Ferrer has the
option to enter into a co-development and commercialization
agreement using tesamorelin for potential additional
indications. The terms and conditions of such a co-development
and commercialization agreement will be negotiated based on any
additional program chosen for development. This agreement
extends until the later of the expiration of the last valid
claim based on a patent right (including patent applications)
controlled by us covering a product licensed under the agreement
or ten years from the date of the first commercial sale of
EGRIFTAtm
for each country covered by the agreement.
We have retained full commercial rights for
EGRIFTAtm
in certain territories, including Canada. In territories where
we do not currently have commercial partners, we may
commercialize
EGRIFTAtm
directly or in collaboration with commercial partners.
Tesamorelin
Our Lead Compound
Tesamorelin is a stabilized 44 amino acid human GRF analogue,
which was synthesized in our laboratories in 1995 using our
long-acting peptide method. Although natural peptides have
significant therapeutic potential, they are subject to enzymatic
degradation which severely limits their effectiveness in
clinical use. Our long-acting peptide method is a peptide
stabilization process which increases the target proteins
resistance to enzymatic degradation, while maintaining its
natural specificity. This usually results in a more stable and
efficient compound, which can thus prolong its duration of
action. Tesamorelin induces growth hormone secretion in a
natural and pulsatile way. The clinical results obtained to date
using tesamorelin suggest a therapeutic potential in both
anabolic and lipolytic indications.
EGRIFTAtm
has demonstrated the ability to significantly reduce visceral
adipose tissue, increase muscle mass and reduce waist
circumference.
Mechanism of
Action
In vitro, tesamorelin binds and stimulates human GRF receptors
with similar potency as the endogenous GRF. GRF is a
hypothalamic peptide that acts on the pituitary somatotroph
cells to stimulate the synthesis and pulsatile release of
endogenous growth hormone, which is both anabolic and lipolytic.
Growth hormone exerts its effects by interacting with specific
receptors on a variety of target cells, including chondrocytes,
osteoblasts, myocytes, hepatocytes, and adipocytes, resulting in
a host of pharmacodynamic effects. Some, but not all these
effects, are primarily mediated by insulin-like growth factor
one, IGF-1, produced in the liver and in peripheral tissues.
The effects of recombinant human growth hormone, or rhGH, and
tesamorelin have been the subject of several clinical trials in
the area of HIV-associated lipodystrophy. Based on these
clinical trials, the safety profiles of rhGH and tesamorelin
appear to be very different. The natural synthesis of growth
hormone is regulated by a feedback mechanism preventing its
overproduction. Tesamorelin induces optimal activity of the
somatotrope function and retains the natural rhythm
(pulsatility) of the physiological secretion of growth hormone
without interfering with the feedback mechanism mentioned above.
With the exogenous administration of rhGH, the feedback
mechanisms are short-circuited, which gives rise to higher
levels of growth hormone. The side effects associated with rhGH
include nerve, muscle or joint pain, swelling due to fluid
retention (edema), carpal tunnel syndrome, numbness and tingling
of skin and increased risk of diabetes. These side effects are
particularly frequent among older people. In addition, rhGH can
cause hyperglycemia which makes it contraindicated for patients
with diabetes or pre-diabetic conditions.
Muscle Wasting
in COPD New Indication for Tesamorelin
We have selected COPD as our second clinical program with
tesamorelin. We chose to consider muscle wasting in COPD
patients with decreased functioning in daily activities for a
clinical program based on the anabolic properties
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of tesamorelin. The goal of the program is to show an
improvement in functionality in daily activities in COPD
patients with loss of muscle mass.
We completed a three-month Phase 2 clinical study involving 109
stable ambulatory COPD patients. Patients were randomized to
receive either 1 mg or 2 mg doses of tesamorelin, or a
placebo each day. Patients treated using 1 mg or 2 mg
doses of tesamorelin experienced a statistically significant
increase in lean body mass compared with patients receiving a
placebo. In addition to the increase in lean body mass, such
patients experienced improvements in three functional measures
associated with tesamorelin, particularly for the 2 mg
group. The three functional measures were:
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Respiratory symptoms, as assessed by St. Georges
Respiratory Questionnaire;
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Leg discomfort, as assessed by the Borg Scale following an
exercise endurance test; and
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Breathing discomfort, as assessed by the Borg Scale following an
exercise endurance test.
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COPD
COPD is characterized by progressive airflow obstruction due to
chronic bronchitis or emphysema, two commonly co-existing lung
diseases. COPD results in a limitation of the flow of air to and
from the lungs resulting in a shortness of breath. In contrast
to asthma, the limitation of airflow is not easily reversible
and usually gets progressively worse over time.
Many COPD patients are affected by a systemic manifestation
which may lead to muscle wasting. Muscle wasting (cachexia or
involuntary weight loss), a decrease or thinning of the muscle
mass, is associated with several abnormalities, including
impaired exercise capacity and functioning and decreased muscle
strength. Muscle wasting is an independent predictor of a COPD
patients functional deterioration and mortality, and it is
a common symptom in patients with moderate to severe COPD. The
importance of improving not only muscle strength, but other
functional parameters and quality of life is well recognized in
order to improve the well being of patients with COPD and
decreased functionality. We are not aware of any treatment for
muscle wasting in COPD approved by any regulatory authorities.
Market
Opportunity
According to independent research, 26 million adults aged
40 or over were diagnosed with COPD in the United States,
France, Germany, Italy, the United Kingdom, Spain and Japan in
2009. The prevalence of COPD increases with age and is much
higher in adult males. The diagnosed population is expected to
increase at a compound annual growth rate of 2.5%.
Treatment varies across countries and region, however
17.9 million patients were receiving treatment for COPD
management in 2009 in the United States, France, Germany, Italy,
the United Kingdom, Spain and Japan. COPD can be classified
using four levels of severity, from mild to very severe (stages
I to IV) using the Global Initiative for Chronic
Obstructive Lung Disease (GOLD) classification. Our program will
focus primarily on COPD patients in GOLD stage II and III.
Based on available market data, we estimate that in 2009, the
number of diagnosed COPD patients in GOLD stage II
and III suffering from a muscle wasting condition, with a
body mass index of under 25, was approximately 3.1 million
in those markets.
Clinical
Development Plan
Tesamorelins anabolic properties have led us to pursue its
development for muscle wasting in COPD patients as our second
indication. This clinical development program will be conducted
in stable ambulatory COPD patients, GOLD stage II and III,
with muscle wasting experiencing decreased functionality in
daily activities. It will include three studies:
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One Phase 2 study: This study will be a randomized,
placebo-controlled study in approximately 200 COPD patients with
muscle wasting. Patients will be randomized to receive either
one of two different dosages of tesamorelin or placebo each day
for six months. We intend to randomize our first patient in this
Phase 2 clinical study in the second half of 2011. The Phase 2
study will evaluate the safety and efficacy of using tesamorelin
in COPD patients, GOLD stage II and III, with muscle
wasting. The primary endpoint will be an increase in lean body
mass. Other efficacy endpoints will be measured, such as a six
minute walking distance test, exercise endurance time, and
quality of life (daily activities). Safety assessments will
include monitoring of adverse events and laboratory evaluations.
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Two Phase 3 studies: If the Phase 2 study is
successful, we anticipate there will be two
12-month
Phase 3 studies (one pivotal and one confirmatory) to be
conducted in parallel. We expect a total of approximately
1,200 patients will be included in this program.
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We currently believe that the clinical trials will last
approximately four years and that the program will cost between
approximately $55 and $65 million. A significant portion of
the costs will be borne by our commercial partners if they elect
to exercise their option to commercialize under their respective
agreements.
Other Product
Candidates
Novel Growth
Hormone-Releasing Factor Analogues
We are working on several novel analogues of GRF that have
improved chemical stability compared to tesamorelin. To date, we
have synthesized over 80 different compounds. We believe that
GRF compounds have the potential to improve patient outcome in
many high-value indications. We also believe we can improve the
route of administration of GRF peptides to make them quicker and
easier to use for patients.
Compounds for
Acute Kidney Injury
AKI is the acute deterioration of kidney function leading to
increased urea waste products and electrolyte imbalance in
blood. AKI is common among hospitalized patients and complicates
the management of patients in intensive care units. According to
a 2008 medical publication, AKI affected 3% to 7% of patients
admitted to hospital and approximately 25% to 30% of patients in
the intensive care unit within days of major surgery. The
incidence of AKI was approximately 600,000 to
900,000 patients in the United States per year. Despite
hospitalization and renal replacement, the mortality rate is 50%
to 60% for dialyzed patients. We believe that hemodialysis is
the only approved treatment for post-surgical AKI.
We have identified AKI as a potential clinical program for
internal development. We have developed novel peptides
specifically tailored for the prevention or treatment of AKI.
One of these peptides, TH0673, is a peptide that is currently in
preclinical development. We have tested TH0673 in animal models
of AKI and have found that it increases creatinine clearance,
improves excretion of nitrogenous waste compounds and limits
kidney damage. We expect to have additional preclinical results
in AKI in the first half of 2011.
Other Discovery
Activities Melanotransferrin Peptides (Anti-Cancer
Compounds)
In November 2010, we entered into a discovery and collaboration
agreement with the Université du Québec à
Montréal, Gestion Valeo and Transfert Plus in connection
with research led by Dr. Richard Béliveau seeking to
discover short peptide mimics of melanotransferrin for the
development of a new cancer treatment.
Melanotransferrin is related to the transferrin family of
proteins and is expressed normally in melanocytes, but also in
several cancer cells. Dr. Béliveaus research has
demonstrated that soluble melanotransferrin reduces cell
migration, invasion and angiogenesis, which are hallmarks of
tumorigenesis and metastasis. We have identified small peptides
from the melanotransferrin protein which could replicate the
functions of the full length protein. Currently, we are
optimizing the peptides for better pharmaceutical properties so
that the optimized peptides can be tested in animal models of
cancer and tumor angiogenesis.
Intellectual
Property
Our Current
Patent Portfolio
Our current patent portfolio is comprised of patents and patent
applications for the following compounds:
Tesamorelin
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In the United States, we own a patent covering the composition
of matter (tesamorelin), which is scheduled to expire in 2015.
We have applied for a patent term extension requesting an
extension of five years to this patent term. If our request for
patent term extension for the entire five year term is granted,
the patent protection for tesamorelin in the United States would
be extended until 2020. In addition, we own an issued United
States patent relating to the use of tesamorelin in the
treatment of HIV-associated lipodystrophy, which is scheduled to
expire in 2023. Because tesamorelin qualifies as a new chemical
entity, we benefit from data protection for a five year period
for
EGRIFTAtm
ending November 2015. See Regulatory
Exclusivity.
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In Europe, tesamorelin is covered by granted patents scheduled
to expire in 2016. In the event of receipt of marketing approval
from the EMA, we intend to apply for supplementary protection
certificates, or SPCs, in certain countries which, if granted,
could extend the patents covering tesamorelin in the countries
where SPCs are approved until 2021. We have also filed two
patent applications relating to the use of tesamorelin in the
treatment of
HIV-associated
lipodystrophy where, if such patents were granted, they would be
scheduled to expire in 2023 and 2025, respectively. As discussed
below, the first time a new product is approved in Europe, the
regulation provides for a 10 year exclusivity period.
Assuming approval in 2012, we would benefit from protection
until 2022. See Regulatory Exclusivity.
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We have obtained a patent covering the composition of matter
(tesamorelin) in Brazil that expires in 2019.
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We have filed patent applications for the therapeutic indication
of muscle wasting in COPD in several countries, including the
United States, where, if such patents were granted, they would
be scheduled to expire in 2024, with the exception of a
recently-granted
patent application in the United States, which benefits
from a patent term adjustment extending its term to 2027.
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We have filed patent applications in several countries,
including the United States, for the new formulation of
tesamorelin where, if such patents were granted, they would be
scheduled to expire in 2028.
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We have filed United States and international Patent Cooperation
Treaty applications relating to combination therapies of
tesamorelin with certain drugs indicated for the treatment of
HIV which, if patents issued from these applications were
granted, would be scheduled to expire in 2030.
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Novel GRF
Peptides
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We have recently filed a United States provisional patent
application relating to new GRF analogues. Patents claiming
priority from this application may be pursued and if such
patents were granted, they would be scheduled to expire in 2032.
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AKI
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We have filed patent applications in several countries,
including the United States, relating to our peptide TH0673
and related peptides, and their use in the treatment of AKI,
where, if such patents were granted, they would be scheduled to
expire in 2028.
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Our
Trademarks & Other Intellectual Property
EGRIFTAtm
is the trademark used for tesamorelin for the reduction of
excess abdominal fat in HIV-infected patients with
lipodystrophy. Trademark registration in the United States
necessitates a prior commercial use in the territory in order to
be granted. We are in the process of filing the declaration of
use to obtain trademark registration.
We have obtained registration for
EGRIFTAtm
in Europe, Japan, Australia, Norway, Switzerland, Mexico and
Lebanon and have filed trademark applications for this trademark
in other countries. The use of the trademark in each
jurisdiction generally requires the approval of the regulatory
authorities in such jurisdictions.
Other trademarks related to tesamorelin have been filed as part
of our business strategy. We have also reserved certain domain
names in order to support future activities.
Our Policy on
Intellectual Property
Our intellectual property practice is to keep all information
relating to proprietary compounds, inventions, improvements,
trade secrets, know-how and continuing technological innovation
confidential and, where practicable, file patent and trademark
applications. In particular, as part of our intellectual
property protection practice, we:
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perform surveillance of third party patents and patent
applications in order to identify any third party patent or
third party patent application which, if granted, could be
infringed by our activities;
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where practicable, file patent applications for any new and
patentable invention, development or improvement in the United
States and in other countries;
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prosecute all pending patent applications in conformity with
applicable patent laws and in a manner that efficiently covers
our activities;
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file trademark applications in countries of interest for our
trademarks;
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register domain names in countries of interest; and
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maintain our intellectual property rights by paying government
fees as may be necessary to ensure such rights remain in force.
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Regulatory
Exclusivity
The regulatory regimes of the United States and Europe may
provide market exclusivity for a pharmaceutical product. Data
protection and patent term extension provide a patent holder
with additional protection against third parties who may wish to
commercialize a product similar to an approved product.
Data
Protection
In the United States, the Drug Price Competition and Patent Term
Restoration Act of 1984, also known as the Hatch-Waxman Act,
awards, in certain circumstances, non-patent marketing
exclusivities to pioneer drug manufacturers. The Hatch-Waxman
Act provides five years of non-patent marketing exclusivity
within the United States to an applicant who gains approval
of a New Drug Application, or NDA, for a new chemical
entity, a drug for which the FDA has not previously
approved any other new drug with the same active moiety, which
is the molecule or ion responsible for the action of the drug.
This marketing exclusivity prevents the FDA from approving, in
certain circumstances, any abbreviated new drug application for
a generic drug or any 505(b)(2) NDA. See Government
RegulationUnited StatesFDA Process below.
In Europe, when a product based on a new compound is approved,
the European Medicines Agency, or EMA, grants a 10 year
exclusivity period beginning on the date of such approval. When
the same compound is approved for a second indication within the
first eight years of this 10 year period, the exclusivity
period is extended by one year, providing a total exclusivity
period of 11 years for the compound.
Patent Term
Extension
In the United States, the Hatch-Waxman Act permits patent term
extension for one patent per approved drug of up to five years
for patent term lost during product development and the FDA
regulatory review process. However, patent term extension cannot
extend the remaining patent term beyond a total of 14 years
from the products approval date. The patent term extension
period is generally one-half the time between the effective date
of an Investigational New Drug Application, or IND, and the
submission date of an NDA plus the time between the submission
date of an NDA and the NDA. We have applied for a patent term
extension with respect to tesamorelin.
In the European Union, SPCs for medicinal products are governed
by Regulation 469/2009 with effect from May 2009. An SPC
has the effect of extending the term of a patent relating to
protection of a particular medicinal product by compensating the
patentee for some lost patent protection caused by the length of
time taken to obtain marketing authorisation for the product in
question. An SPC is a national right, available in member states
of the European Union, by application to the national patent
office of each state for which a certificate is desired. The SPC
must be based on a patent but since an SPC is only granted in
respect of a very specific active ingredient in a product, it is
generally of rather more limited scope than the patent on which
it is based. Typically, the term of the SPC is equal to the
period which has elapsed between filing of the patent
application and grant of the first European Union marketing
authorisation less five years. The term of the SPC may not,
generally, exceed five years. However, some European Union
legislation regarding pediatric medicines provides for a
six-month extension of the basic SPC term in certain
circumstances. The SPC takes effect on expiry of the basic
patent. In each country for which SPC protection is sought, a
separate SPC application must be filed within six months of the
grant of the first marketing authorisation in that country for
the active ingredient(s) in question.
Manufacturing
We do not own or operate commercial scale manufacturing
facilities for the production of our product or any of our
product candidates, nor do we have plans to develop our own
manufacturing operations in the foreseeable future. We currently
depend on third-party contract manufacturers for all of our
required raw materials, drug substance and finished product for
clinical trials and commercial sale.
We are responsible for the manufacture and supply of tesamorelin
to ensure the commercialization of
EGRIFTAtm
under our agreements with EMD Serono, Sanofi and Ferrer. As part
of our agreement with EMD Serono, we are required to maintain
certain levels of inventory. In order to fulfill these
contractual obligations, we have negotiated and entered into
various third-party supply agreements.
53
Bachem
We have an agreement with Bachem, Inc., an American subsidiary
of Swiss-based Bachem AG, providing for the manufacturing and
supply of the active pharmaceutical ingredient of tesamorelin
for clinical programs and
EGRIFTAtm
for commercial sale in the United States.
Draxis
We have an agreement with Draxis Pharma, a division of Draxis
Specialty Pharmaceuticals, Inc., or Draxis, providing for the
manufacture and supply of the finished form of tesamorelin for
clinical programs and
EGRIFTAtm
for commercial sale. Under our agreement, Draxis must fill vials
with tesamorelin, lyophilize it, label and package those vials
and deliver them to locations in accordance with our
instructions.
We have identified and initiated discussions with possible
secondary suppliers of these products. We believe that there are
alternate sources of supply for these products that will be able
to satisfy our needs and will be able to receive FDA
qualification. We expect our new presentation as well as our new
formulation of tesamorelin will significantly increase our
production capacity for
EGRIFTAtm
due to the smaller quantity of vials, shorter manufacturing
process times and increased batch sizes.
Competition
The pharmaceutical industry is characterized by intense
competition and rapid innovation. Our potential competitors
include large pharmaceutical and biotechnology companies,
specialty pharmaceutical and generic drug companies, academic
institutions, government agencies and research institutions,
many of whom have greater financial, technical and human
resources than us. We believe the key competitive factors that
will affect the development and commercial success of
EGRIFTAtm
and our product candidates are efficacy, safety and tolerability
profile, reliability, product acceptance by physicians and other
healthcare providers, convenience of dosing, price and
reimbursement. Also, the development of new treatment methods
for the indications we are targeting could render our drugs
non-competitive or obsolete. We are not aware of other GRF
products being commercialized or in development for the
reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy although we may face indirect competition for
EGRIFTAtm
from other drugs that may be prescribed by physicians. The use
of these other drugs for the reduction of excess abdominal fat
in HIV-infected patients with lipodystrophy has not been
approved by the FDA nor any other regulatory authority.
We believe that competition in the area of muscle wasting in
COPD patients is limited. We are aware of one other compound
which has completed a Phase 1 clinical study in COPD muscle
wasting (GOLD stage I and II). We may face indirect competition
from other drugs such as anabolic steroids, testosterone and
growth hormone that may be prescribed by physicians. However,
these drugs have not been approved by the FDA for muscle wasting
in COPD.
Government
Regulation
Overview
The research, development, manufacture and marketing of
pharmaceutical products are governed by various governmental
authorities throughout the world to ensure efficacy and safety.
Governmental authorities in the United States at the federal,
state and local level, and other countries, extensively
regulate, among other things, the research, development,
testing, manufacture, quality control, approval, labeling,
packaging, storage, record-keeping, promotion, advertising,
distribution, marketing, export and import of products, such as
EGRIFTAtm
and other product candidates that we are developing. The process
of obtaining regulatory approvals and the subsequent compliance
with appropriate federal, state, local and foreign statutes and
regulations require the expenditure of substantial time and
financial resources. Failure to comply with the applicable
United States or foreign requirements at any time during
the product development process, approval process or after
approval, may subject an applicant to administrative or judicial
sanctions. Sanctions could include refusal to approve pending
applications, withdrawal of an approval, a clinical hold,
warning letters, product recalls, product seizures, total or
partial suspension of production or distribution injunctions,
fines, refusals of government contracts, restitution,
disgorgement or civil or criminal penalties.
On November 10, 2010, the FDA approved
EGRIFTAtm
as the first approved treatment for excess abdominal fat in
HIV-infected patients with lipodystrophy. Our other product
candidates must receive regulatory approval from the
54
FDA or other relevant foreign regulatory authorities before they
may legally be marketed in the United States or other countries.
In Canada, these activities are governed by the provisions of
the Food and Drugs Act and its regulations, which is enforced by
the Therapeutic Products Directorate of the Health Products and
Food Branch of Health Canada. We have not yet applied to market
EGRIFTAtm
in Canada.
United
States FDA Process
Before new pharmaceutical products may be sold in the United
States, clinical trials of the product candidates must be
conducted and the results submitted to the FDA for approval. The
drug approval process requires, among other things, a
demonstration of product safety and efficacy. Generally, a
demonstration of safety and efficacy includes preclinical
testing and clinical trials of product candidates. The testing,
manufacture and marketing of pharmaceutical products in the
United States requires the approval of the FDA. The FDA enforces
laws and regulations which apply to preclinical testing,
clinical trials, and manufacture of these products. The drug
approval process in the United States is described in brief
below.
Pre-Clinical Testing: Before testing of any compounds with
potential therapeutic value in human subjects may begin in the
United States, stringent government requirements for
pre-clinical data must be satisfied. Pre-clinical testing
includes laboratory evaluations of product pharmacology and
toxicity in animal studies of the drug candidates. In parallel,
the chemistry of the drug candidates must be elucidated and
their manufacturing, including formulation and stability,
clearly defined and controlled.
Investigational New Drug Application: Among other things,
pre-clinical testing results obtained from animal studies and
in vitro studies, are submitted to the FDA as part of an
IND application and are reviewed by the FDA prior to the
commencement of human clinical trials. An IND sponsor must also
include a protocol detailing, among other things, the objectives
of the initial clinical trial, the parameters to be used in
monitoring safety and the effectiveness criteria to be evaluated
if the initial clinical trial lends itself to an efficacy
evaluation. Some preclinical testing may continue even after the
IND is submitted. Unless the FDA objects to an IND (referred to
as a clinical hold), the IND becomes effective 30 days
following its receipt by the FDA. Once trials have commenced,
the FDA may stop the trials at any time by placing them on
clinical hold because of safety concerns or
noncompliance. If the FDA issues a clinical hold, the IND
sponsor and the FDA must resolve any outstanding concerns before
the clinical study can begin. Accordingly, we cannot be sure
that submission of a IND will result in the FDA allowing
clinical trials to begin or that, once began, issues will not
arise that suspend or terminate such trials.
Clinical Trials: Clinical trials involve the administration of
the drug to healthy human volunteers or to patients under the
supervision of a qualified investigator pursuant to an
FDA-approved protocol. Each clinical trial must be conducted
under the auspices of an Institutional Review Board, or IRB,
that considers, among other things, ethical factors, the safety
of human subjects and approves the patient informed consent,
which must be agreed to by all participants prior to
participation in the clinical trial. Once an IND is in effect,
each new clinical protocol and any amendments to the protocol
must be submitted to the FDA for review, and to the IRBs for
approval. Protocols detail, among other things, the objectives
of the clinical trial, dosing procedures, subject selection and
exclusion criteria, and the parameters to be used to monitor
subject safety. Human clinical trials are typically conducted in
three sequential phases, although the phases may overlap with
one another.
All phases of clinical trials must be conducted in conformance
with Good Clinical Practices, which are ethical and scientific
quality standards for conducting, recording, and reporting
clinical trials to assure that the rights, safety, and
well-being of trial participants are protected, and the
FDAs regulations for the protection of human subjects.
Phase 1 Clinical Trials: Phase 1 clinical trials represent the
initial administration of the investigational drug to a small
group of healthy human subjects or, more rarely, to a group of
select patients with the targeted disease or disorder. The goal
of Phase 1 clinical trials is typically to test for safety, dose
tolerance, absorption, bio-distribution, metabolism, excretion
and clinical pharmacology and, if possible, to gain early
evidence regarding efficacy.
Phase 2 Clinical Trials: Phase 2 clinical trials involve a small
sample of the actual intended patient population and seek to
assess the efficacy of the drug for specific targeted
indications, to determine dose response and the optimal dose
range and to gather additional information relating to safety
and potential adverse effects.
55
Phase 3 Clinical Trials: Once an investigational drug is
found to have some efficacy and an acceptable safety profile in
the targeted patient population, Phase 3 clinical trials are
initiated to establish further clinical safety and efficacy of
the investigational drug in a broader sample of the patient
population with the target disease or disorder at geographically
dispersed study sites in order to determine the overall
risk-benefit ratio of the drug and to provide an adequate basis
for regulatory approval and product labeling.
New Drug Application: All data obtained from a comprehensive
development program including research and product development,
manufacturing, pre-clinical and clinical trials and related
information are submitted in an NDA to the FDA. In addition to
reports of the trials conducted under the IND, the NDA includes
information pertaining to the preparation of the new drug,
chemistry manufacturing and controls, or CMC, analytical
methods, details of the manufacture of finished products and
proposed product packaging and labeling. The submission of an
application is no guarantee that the FDA will find the
application complete and accept it for filing. The FDA may
refuse to file the application and request additional
information rather than accept the application for filing, in
which case, the application must be resubmitted with the
supplemental information. The re-submitted application is also
subject to review before the FDA accepts it for filing. Once an
application is accepted for filing, an FDA review
team medical doctors, chemists, statisticians,
microbiologists, pharmacologists, and other experts
evaluates whether the studies the sponsor submitted show that
the drug is safe and effective for its proposed use and whether
the applicants manufacturing is GMP-compliant to assure
and preserve the products identity, strength, quality and
purity. As part of the approval process, the FDA will inspect
the facility or facilities where the product is manufactured.
The FDA review process may be extended by FDA requests for
additional information or clarification. In some cases, the FDA
may decide to expedite the review of new drugs that are intended
to treat serious or life threatening conditions and demonstrate
the potential to address unmet medical needs.
As part of its review, the FDA may refer the application to an
advisory committee for evaluation and a recommendation as to
whether the application should be approved. The FDA is not bound
by the recommendation of an advisory committee, but it generally
follows such recommendations.
Under legislation enacted in 2007, the FDA may determine that a
risk evaluation and mitigation strategy, or REMS, is necessary
to ensure that the benefits of a new product outweigh its risks.
If required, a REMS may include various elements, such as
publication of a medication guide, patient package insert, a
communication plan to educate healthcare providers of the
drugs risks, limitations on who may prescribe or dispense
the drug, or other measures that the FDA deems necessary to
assure the safe use of the drug.
In reviewing an NDA, the FDA may grant marketing approval,
request additional information or deny the application if it
determines the application does not provide an adequate basis
for approval. The FDA may require larger or additional clinical
trials, leading to unanticipated delay or expense. Even if such
additional information and data are submitted, the FDA may
ultimately decide that the NDA does not satisfy the criteria for
approval. Data from clinical trials may be subject to different
interpretation, and the FDA may interpret data differently than
the applicant. The receipt of regulatory approval often takes a
number of years, involving the expenditure of substantial
resources and depends on a number of factors, including the
severity of the disease in question, the availability of
alternative treatments and the risks and benefits demonstrated
in clinical trials. The FDA may require, as a condition of
approval, restricted distribution and use, enhanced labeling,
special packaging or labeling, expedited reporting of certain
adverse events, pre-approval of promotional materials, or
restrictions on
direct-to-consumer
advertising or commitments to conduct additional research
post-approval. The FDA will issue a complete response letter if
the agency decides not to approve the NDA in its present form.
The complete response letter usually describes all of the
specific deficiencies in the NDA identified by the FDA. The
deficiencies may be minor, for example, requiring labeling
changes, or major, for example, requiring additional clinical
studies. If a complete response letter is issued, the applicant
may either resubmit the NDA, addressing all of the deficiencies
identified in the letter, or withdraw the application. In
addition, changes in FDA approval policies or requirements may
occur, or new regulations may be promulgated, which may result
in delay or failure to receive FDA approval.
Changes to an approved product, such as adding a new indication,
making certain manufacturing changes, or changing manufacturers
or suppliers of certain ingredients or components requires
review and approval of the FDA.
Under the Hatch-Waxman Act, the U.S. Congress created an
abbreviated FDA review process for generic versions of pioneer
(brand name) drug products. The Hatch-Waxman Act requires NDA
applicants and NDA holders to provide certain information about
patents related to the drug for listing in the FDAs
publication, Approved Drug Products
56
with Therapeutic Equivalence Evaluations, commonly known
as the Orange Book. The Hatch-Waxman Act allows for, under
certain circumstances, an abbreviated NDA, or ANDA, where an
applicant seeks to determine that its proposed product is
biologically equivalent to the reference drug. ANDA applicants
do not have to conduct extensive clinical trials to prove the
safety or efficacy of the drug product; rather, they are
required to conduct less rigorous bioequivalence testing. Drugs
approved in this way are commonly referred to as generic
equivalents to the listed drug, are listed as such by the
FDA, and can often be substituted by pharmacists under
prescriptions written for the original listed drug. In addition,
in certain cases, an application for marketing approval may
include information regarding safety and efficacy of a proposed
drug that comes from studies not conducted by or for the
applicant and for which the applicant has not obtained a
specific right to reference those studies. Such applications,
known as a 505(b)(2) NDA, are permitted for new drug products
that incorporate previously approved active ingredients, even if
the proposed new drug incorporates an approved active ingredient
in a novel formulation or for a new indication.
Section 505(b)(2) also permits the FDA to rely for such
approvals on literature or on a finding by the FDA of safety
and/or
efficacy for a previously approved drug product. In addition, a
505(b)(2) NDA for changes to a previously approved drug product
may rely on the FDAs finding of safety and efficacy of the
previously approved product coupled with new clinical
information needed by FDA to support the change. FDA approval of
the NDA or ANDA is required before marketing of the product may
begin in the United States.
The Pediatric Research Equity Act, or PREA, requires NDAs (or
NDA supplements) for a new active ingredient, new indication,
new dosage form, new dosing regimen, or new route of
administration to contain data assessing the safety and efficacy
for the claimed indication in all relevant pediatric
subpopulations. Data to support dosing and administration also
must be provided for each pediatric subpopulation for which the
drug is safe and effective. FDA may grant deferrals for the
submission of data, or full or partial waivers from the PREA
requirements. Unless otherwise required by regulation, PREA does
not apply to any drug for an indication for which orphan
designation, as described below, has been granted.
If a product receives regulatory approval, the approval may be
significantly limited to specific diseases and dosages or the
indications for use may otherwise be limited, which could
restrict the commercial value of the product. Further, the FDA
may require that certain contraindications, warnings or
precautions be included in the product labeling. In addition,
the FDA may require Phase 4 testing which involves clinical
trials designed to further assess a drug safety and
effectiveness and may require testing and surveillance programs
to monitor the safety of approved products that have been
commercialized.
Post-Approval Studies and Registries: Post-approval studies,
also referred to as Phase 4 clinical trials are studies that are
conducted after a product has been approved. These trials can be
conducted for a number of purposes, including to collect
long-term safety information or to collect additional data about
a specific population. As part of a product approval, the FDA
may require that certain Phase 4 studies be conducted
post-approval, and in these cases these Phase 4 studies are
called post-marketing commitments.
Adverse Event Reporting: Regulatory authorities track
information on side effects and adverse events reported during
clinical studies and after marketing approval. Non-compliance
with FDA safety reporting requirements may result in FDA
regulatory action that may include civil action or criminal
penalties. Side effects or adverse events that are reported
during clinical trials can delay, impede or prevent marketing
approval. Similarly, adverse events that are reported after
marketing approval can result in additional limitations being
placed on the products use and, potentially, withdrawal or
suspension of the product from the market. Furthermore, in
September 2007 the Food and Drug Administration Amendments Act
of 2007 was enacted, which provides the FDA with expanded
authority over drug products after approval. This legislation
enhances the FDAs authority with respect to post-marketing
safety surveillance including, among other things, the authority
to require additional post-approval studies or clinical trials
and mandate label changes as a result of safety findings,
including the development and implementation of a REMS.
Orphan Drug
Designation
Under the Orphan Drug Act, the FDA may grant orphan designation
to a drug intended to treat a rare disease or
condition, which is a disease or condition that affects
fewer than 200,000 individuals in the United States, or more
than 200,000 individuals in the United States and for which
there is no reasonable expectation that the cost of developing
and making a drug available in the United States for this type
of disease or condition will be recovered from sales in the
United States of the drug. Orphan product designation must be
requested before submitting an NDA. After the FDA grants orphan
drug designation, the identity of the therapeutic agent and its
potential orphan
57
use are disclosed publicly by the FDA. Orphan product
designation does not convey any advantage in, or shorten the
duration of the regulatory review and approval process.
If a drug that has orphan designation subsequently receives the
first FDA approval for the disease or condition for which it has
such designation, the product is entitled to orphan drug
exclusivity, which means that the FDA may not approve any other
applications to market the same drug for the same indication for
seven years, except in limited circumstances, such as a showing
of clinical superiority to the product with orphan exclusivity.
Competitors, however, may receive approval of different drugs
for the indication for which the orphan product has exclusivity
or may obtain approval for the same drug but for a different
indication for which the orphan product has exclusivity. Orphan
product exclusivity also could block the approval of one of our
product candidates for seven years if a competitor obtains
approval of the same drug or if our product candidate is
determined to be contained within the competitors product
for the same indication or disease. If a drug designated as an
orphan drug receives marketing approval for an indication
broader than what is designated, it may not be entitled to
orphan product exclusivity. Orphan drug status in the European
Union has similar but not identical benefits in the European
Union.
Expedited
Development and Review Programs
The FDA has a fast track program that is intended to expedite or
facilitate the process for reviewing new drugs that meet certain
criteria. Specifically, new drugs are eligible for fast track
designation if they are intended to treat a serious or
life-threatening condition and demonstrate the potential to
address unmet medical needs for the condition. Fast track
designation applies to the combination of the product and the
specific indication for which it is being studied. Unique to a
fast track product, the FDA may consider for review sections of
the NDA on a rolling basis before the complete application is
submitted, if the sponsor provides a schedule for the submission
of the sections of the NDA, the FDA agrees to accept sections of
the NDA and determines that the schedule is acceptable, and the
sponsor pays any required user fees upon submission of the first
section of the NDA.
Any product submitted to the FDA for market, including a fast
track program, may also be eligible for other types of FDA
programs intended to expedite development and review, such as
priority review and accelerated approval. Any product is
eligible for priority review if it has the potential to provide
safe and effective therapy where no satisfactory alternative
therapy exists or a significant improvement in the treatment,
diagnosis or prevention of a disease compared to marketed
products. The FDA will attempt to direct additional resources to
the evaluation of an application for a new drug designated for
priority review in an effort to facilitate the review.
Additionally, a product may be eligible for accelerated
approval. Drug products studied for their safety and
effectiveness in treating serious or life-threatening illnesses
and that provide meaningful therapeutic benefit over existing
treatments may receive accelerated approval, which means that
they may be approved on the basis of adequate and
well-controlled clinical studies establishing that the product
has an effect on a surrogate endpoint that is reasonably likely
to predict a clinical benefit, or on the basis of an effect on a
clinical endpoint other than survival or irreversible morbidity.
As a condition of approval, the FDA may require that a sponsor
of a drug receiving accelerated approval perform adequate and
well-controlled post-marketing clinical studies. In addition,
the FDA currently requires as a condition for accelerated
approval pre-approval of promotional materials, which could
adversely impact the timing of the commercial launch of the
product. Fast track designation, priority review and accelerated
approval do not change the standards for approval but may
expedite the development or approval process.
Non-U.S.
Regulation
In addition to regulations in the United States, we will be
subject to a variety of regulations governing clinical studies
and commercial sales and distribution of our products in other
jurisdictions around the world. Whether or not we obtain FDA
approval for a product, we must obtain approvals from the
comparable regulatory authorities of foreign countries before we
can commence clinical studies or marketing of the product in
those countries. The approval process varies from country to
country and the time may be longer or shorter than that required
for FDA approval. The requirements governing the conduct of
clinical studies, product licensing, pricing and reimbursement
vary greatly from country to country. In some international
markets, additional clinical trials may be required prior to the
filing or approval of marketing applications within the country.
In the European Union, medicinal products must be authorized
either through the decentralized procedure by the competent
authorities of the European Union Member States, or through the
centralized procedure by the European Commission following an
opinion by the EMA. The centralized procedure provides for the
grant of a single marketing authorization that is valid for all
European Union member states. The centralized procedure is
compulsory for medicines produced by certain biotechnological
processes, products with a new active substance indicated for
the
58
treatment of certain diseases such as neurodegenerative disorder
or diabetes and products designated as orphan medicinal
products, and optional for those products which are highly
innovative or for which a centralized process is in the interest
of patients. The decentralized approval procedure provides for
approval by one or more concerned member states
based on an assessment of an application performed by one member
state, known as the reference member state. Under the
decentralized approval procedure, an applicant submits an
application, or dossier, and related materials (draft summary of
product characteristics, draft labeling and package leaflet) to
the reference member state and concerned member states. The
reference member state prepares a draft assessment and drafts of
the related materials within 120 days after receipt of a
valid application. Within 90 days of receiving the
reference member states assessment report, each concerned
member state must decide whether to approve the assessment
report and related materials. If a member state objects to
approval of the assessment report and related materials on the
grounds of potential serious risk to public health, the disputed
points may eventually be referred to the European Commission,
whose decision is binding on all member states. In many European
Union countries, pricing and reimbursement negotiations must
also take place before the product is sold in their national
market between the company marketing the product and the
competent national authorities.
In order to obtain approval for commercializing new drugs in
Canada, we must satisfy many regulatory conditions. We must
complete preclinical studies in order to file a Clinical Trial
Application, CTA, in Canada. We then receive different clearance
authorizations to proceed with Phase 1 clinical trials, which
can then lead to Phase 2 and Phase 3 clinical trials. Once all
three phases of trials are completed, we file a registration
file named a New Drug Submission, or NDS, in Canada. If the NDS
demonstrates that the product was developed in accordance with
the regulatory authorities rules, regulations and
guidelines and demonstrates favourable safety, efficacy and
receives a risk/benefit analysis, then the regulatory
authorities issue a notice of compliance, which allows us to
market the product.
Good
Manufacturing Practices
The FDA, the EMA, the competent authorities of the European
Union Member States and other foreign regulatory agencies
regulate and inspect equipment, facilities, and processes used
in the manufacturing of pharmaceutical and biologic products
prior to approving a product. Among the conditions for NDA or
equivalent foreign approval is the requirement that the
prospective manufacturers quality control and
manufacturing procedures adhere to the FDAs or other
competent authorities current GMP. Before approval of an
NDA or equivalent foreign approval, the FDA or other competent
authority may perform a pre-approval inspection of a
manufacturing facility to determine its compliance with GMP and
other rules and regulations. In complying with GMP,
manufacturers must continue to expend time, money and effort in
the area of production and quality control to ensure full
technical compliance. Similarly, NDA or equivalent foreign
approval may be delayed or denied due to GMP non-compliance or
other issues at contract sites or suppliers included in the NDA
or equivalent foreign approval, and the correction of these
shortcomings may be beyond our control. Facilities are also
subjected to the requirements of other government bodies, such
as the U.S. Occupational Safety & Health
Administration and the U.S. Environmental Protection Agency.
If, after receiving clearance from regulatory agencies or
competent authorities, a company makes certain changes in
manufacturing equipment, location, or process, additional
regulatory review and approval may be required. Our third-party
suppliers must adhere to GMP and product-specific regulations
enforced by the FDA or other competent authorities following
product approval. The FDA, the European Union and other national
competent authorities and regulatory agencies also conduct
regular, periodic visits to re-inspect equipment, facilities and
processes following the initial approval of a product. If, as a
result of these inspections, it is determined that our
suppliers equipment, facilities or processes do not comply
with applicable regulations and conditions of product approval,
regulatory agencies may seek civil, criminal or administrative
sanctions
and/or
remedies against them, including the suspension of manufacturing
operations.
Good Clinical
Practices
The FDA, the EMA and other competent authorities promulgate
regulations and standards, commonly referred to as Good Clinical
Practices, or GCP, for designing, conducting, monitoring,
auditing and reporting the results of clinical trials to ensure
that the data and results are accurate and that the trial
participants are adequately protected. The FDA, the European
Union and other foreign national competent authorities and
regulatory agencies enforce GCP through periodic inspections of
trial sponsors, principal investigators and trial sites. We rely
on third-party service providers to conduct our clinical trials.
If our study sites fail to comply with applicable GCP, the
clinical data
59
generated in our clinical trials may be deemed unreliable and
relevant regulatory agencies may require us to perform
additional clinical trials before approving our marketing
applications.
Good
Laboratory Practices
The FDA and other regulatory authorities promulgate regulations
and standards, commonly referred to as Good Laboratory
Practices, or GLP, for the conduct of non-clinical, commonly
referred to as preclinical, non-human studies to
provide a framework within which laboratory studies are planned,
performed, monitored, recorded, reported and archived.
Compliance with GLP is intended to assure regulatory authorities
of the quality and integrity of the results obtained during the
preclinical studies. Before we may test our product candidates
on humans in clinical trials, we must first conduct preclinical
testing, including animal studies, in accordance with GLP. The
FDA or other regulatory authorities may inspect the testing
facilities where our pre-clinical studies are conducted. The
results of preclinical studies in the United States, Europe or
other countries, not conducted in accordance with GLP, might be
inadmissible in support of an NDA in the United States, or
comparable applications in other countries.
United States
Sales and Marketing
Our commercial partner, EMD Serono, will be subject to various
United States regulations relating to the sales and marketing of
EGRIFTAtm
in the United States. The FDA regulates all advertising and
promotion activities for products under its jurisdiction both
prior to and after approval. A company can make only those
claims relating to safety and efficacy that are approved by the
FDA. Drugs may be promoted only for the approved indications and
in accordance with the provisions of the approved label. The FDA
actively enforces the laws and regulations prohibiting the
promotion of off-label uses, and a company that is found to have
improperly promoted off-label uses may be subject to significant
sanctions. The FDA does not regulate the practice of medicine by
physicians in their choice of treatment, but FDA regulations do
impose stringent restrictions on manufacturers
communications regarding off-label uses. Failure to comply with
applicable FDA requirements may subject a company to adverse
publicity, enforcement action by the FDA, corrective
advertising, and the full range of civil and criminal penalties
available to the FDA.
Marketing of
EGRIFTAtm
within the United States is also subject to various federal and
state laws pertaining to health care fraud and
abuse, including anti-kickback laws and false claims laws.
Anti-kickback laws make it illegal for a prescription drug
manufacturer to solicit, offer, receive, or pay any remuneration
in exchange for, or to induce, the referral of business,
including the purchase or prescription of a particular drug. Due
to the breadth of the statutory provisions and the absence of
guidance in the form of regulations and very few court decisions
addressing industry practices, it is possible that our
commercial partners practices might be challenged under
anti-kickback or similar laws. False claims laws prohibit anyone
from knowingly and willingly presenting, or causing to be
presented for payment to third-party payors (including Medicare
and Medicaid) claims for reimbursed drugs or services that are
false or fraudulent.
In addition, several states require that companies implement
compliance programs or comply with industry ethics codes, adopt
spending limits, and report to state governments any gifts,
compensation, and other remuneration provided to physicians. The
recently enacted health care reform legislation will require
record-keeping and disclosure to the federal government of
payments to physicians commencing in 2012. Any activities
relating to the sale and marketing of our products may be
subject to scrutiny under these laws. Violations of fraud and
abuse laws may be punishable by criminal
and/or civil
sanctions, including fines and civil monetary penalties, as well
as the possibility of exclusion from federal health care
programs (including Medicare and Medicaid). If the government
were to allege or convict our commercial partner of violating
these laws, our business could be harmed. In addition, there is
ability for private individuals to bring similar actions.
Further, there are an increasing number of state laws that
require manufacturers to make reports to states on pricing and
marketing information. Our activities could be subject to
challenge for the reasons discussed above and due to the broad
scope of these laws and the increasing attention being given to
them by law enforcement authorities.
Pharmaceutical
Pricing and Reimbursement
In the United States and in other countries, sales of
EGRIFTAtm
and our other product candidates will depend in part on the
availability of reimbursement from third-party payors.
Third-party payors include government health administrative
authorities (such as the Centers for Medicare &
Medicaid Services in the United States), managed care providers,
private health insurers and other organizations. We believe
EGRIFTAtm
will achieve a high degree of
60
physician and payor acceptance, driven by our products
safety and efficacy, the lack of approved alternative therapies
for these patients and the prominent medical and social need to
treat HIV/AIDS patients.
However, these third-party payors are increasingly challenging
the price and examining the cost-effectiveness of medical
products and services. In addition, significant uncertainty
exists as to the reimbursement status of newly approved
healthcare product candidates. We, or our commercial partners,
may need to conduct expensive pharmacoeconomic studies in order
to demonstrate the cost-effectiveness of
EGRIFTAtm
or our other product candidates.
EGRIFTAtm
or our other product candidates may not be considered
cost-effective. It is time consuming and expensive for us, and
our commercial partners, to seek reimbursement from third-party
payors. Reimbursement may not be available or sufficient to
allow us to sell
EGRIFTAtm
or our other product candidates on a competitive and profitable
basis.
United
States
Pursuant to our agreement with EMD Serono, they are responsible
for identifying and obtaining possible reimbursements under such
government programs in the United States. The U.S. Congress
and state legislatures from time to time propose and adopt
initiatives aimed at cost containment, which could impact our
ability to sell our products profitably. For example, in March
2010, President Obama signed into law the Patient Protection and
Affordable Care Act, and the associated reconciliation bill,
which we refer to collectively as the Health Care Reform Law, a
sweeping law intended to broaden access to health insurance,
reduce or constrain the growth of healthcare spending, enhance
remedies against fraud and abuse, add new transparency
requirements for healthcare and health insurance industries,
impose new taxes and fees on the health industry and impose
additional health policy reforms. Effective October 1,
2010, the Health Care Reform Law revises the definition of
average manufacturer price for reporting purposes,
which could increase the amount of Medicaid drug rebates to
states once the provision is effective. Further, beginning in
2011, the new law imposes a significant annual fee on companies
that manufacture or import certain branded prescription drug
products and biologic agents. Substantial new provisions
affecting compliance also have been enacted, which may require
us, or EMD Serono, to modify our business practices with
healthcare practitioners. We will not know the full effects of
the Health Care Reform Law until applicable federal and state
agencies issue regulations or guidance under the new law.
Although it is too early to determine the effect of the Health
Care Reform Law, the new law appears likely to continue the
pressure on pharmaceutical pricing, especially under the
Medicare program, and also may increase our regulatory burdens
and operating costs.
The MMA imposed new requirements for the distribution and
pricing of prescription drugs for Medicare beneficiaries, and
included a major expansion of the prescription drug benefit
under a new Medicare Part D. Medicare Part D went into
effect on January 1, 2006. Under Part D, Medicare
beneficiaries may enroll in prescription drug plans offered by
private entities which will provide coverage of outpatient
prescription drugs. Part D plans include both stand-alone
prescription drug benefit plans and prescription drug coverage
as a supplement to Medicare Advantage plans. Unlike Medicare
Part A and B, Part D coverage is not standardized.
Part D prescription drug plan sponsors are not required to
pay for all covered Part D drugs, and each drug plan can
develop its own drug formulary that identifies which drugs it
will cover and at what tier or level. However, Part D
prescription drug formularies must include drugs within each
therapeutic category and class of covered Part D drugs,
though not necessarily all the drugs in each category or class.
Any formulary used by a Part D prescription drug plan must
be developed and reviewed by a pharmacy and therapeutic
committee.
It is not clear what effect the MMA will have on the prices paid
for
EGRIFTAtm
and our other product candidates. Some studies indicate that
Part D lowered the average price and increased the
utilization of prescription drugs by Medicare beneficiaries.
Government payment for some of the costs of prescription drugs
may increase demand for products for which we receive marketing
approval. However, any negotiated prices for our products
covered by a Part D prescription drug plan will likely be
lower than the prices we might otherwise obtain. Moreover, while
the MMA applies only to drug benefits for Medicare
beneficiaries, private payors often follow Medicare coverage
policy and payment limitations in setting their own payment
rates. Any reduction in payment that results from the MMA may
result in a similar reduction in payments from non-governmental
payors.
There are also laws that govern a companys eligibility to
participate in Medicare and Medicaid reimbursements. For
example, a company may be debarred from participation if it is
found to have violated federal anti-kickback laws, which could
have a significant effect on a companys ability to operate
its business.
61
The cost of pharmaceuticals continues to generate substantial
governmental and third-party payor interest. We expect that the
pharmaceutical industry will experience pricing pressures due to
the trend toward managed healthcare, the increasing influence of
managed care organizations, and additional legislative
proposals. Indeed, we expect that there will continue to be a
number of U.S. federal and state proposals to implement
governmental pricing controls and limit the growth of healthcare
costs, including the cost of prescription drugs. At the present
time, Medicare is prohibited from negotiating directly with
pharmaceutical companies for drugs. However, the
U.S. Congress is considering passing legislation that would
lift the ban on federal negotiations. While we cannot predict
whether such legislative or regulatory proposals will be
adopted, the adoption of such proposals could harm our business,
financial condition and results of operations.
Some third-party payors also require pre-approval of coverage
for new or innovative drug therapies before they will reimburse
healthcare providers that use such therapies. While we cannot
predict whether any proposed cost-containment measures will be
adopted or otherwise implemented in the future, the announcement
or adoption of these proposals could have a material adverse
effect on our ability to obtain adequate prices for our product
candidates and operate profitably.
Europe and
Other Countries Covered by Our Agreements
Outside of the United States, sales of
EGRIFTAtm
and our other product candidates will depend in part on the
availability and level of reimbursement from third-party payers.
Third-party payers can be public or private or a combination of
both. In order to obtain public reimbursement, prescription
drugs are often evaluated by specialized bodies in a country.
This process is in many cases independent of marketing approval
and the time to carry out the evaluation differs in each
country, often extending beyond the initial regulatory approval
date of the drug.
The requirements and aspects considered during the assessment of
a new prescription drug are not necessarily the same in each
country and are given different weight depending on the
countries attitudes towards providing public healthcare
and the governments willingness to pay for these new
drugs. We or our commercial partners could be required to
conduct specific health economic and other studies or analyses
in order to satisfy such requirements. The decision to comply
with such requirements will depend on the prospects of obtaining
a positive opinion and the costs involved in the process and the
profitability of the market.
In many jurisdictions, pricing plays an important role in the
evaluation of prescription drugs for reimbursement and in most
cases, there are price controls that can include, but are not
limited to, reference pricing to drugs sold within the country
and in other countries, the evaluation of what a fair price
would be based on the condition that is being treated and
innovative quality of the new drug.
Many countries, particularly in Europe, have initiated
cost-cutting measures which have been reflected in reduced
budgets for drugs, higher discounts imposed on manufacturers and
price negotiations between authorities and manufacturers among
other actions. We expect the current reimbursement evaluation
process and pricing policies to keep evolving in ways that we
may not foresee.
In Latin America, Brazil has a formal price procedure through
Agência Nacional de Vigilância Sanitoria (ANVISA)
which determines the price of a pharmaceutical based on five
reference countries, including the United States. However, there
is uncertainty in pricing of pharmaceutical drugs in Latin
America in general.
Pursuant to our agreements with Sanofi and Ferrer, each is
responsible for identifying and obtaining possible
reimbursements under such government programs in their
respective territories.
Employees
As at November 30, 2010, we had 99 employees, all of
whom were employed in Canada. All of our employees are engaged
in administration, finance, research and development, regulatory
and business development functions. None of our employees are
unionized. We believe the relations with our employees are good.
Facilities
We carry out our activities at 2310 Alfred-Nobel Boulevard in
the Technoparc Montréal in Ville Saint-Laurent,
Québec, Canada. We lease a 36,400 square-foot
building, which houses both offices and laboratories which
enable us to conduct small-scale peptide manufacturing,
discovery and manage preclinical and clinical research.
62
Legal
Proceedings
On July 26, 2010, we received a motion for authorization to
institute a class action lawsuit against us, our chairman and
our former chief executive officer. This motion was filed in the
Superior Court of Québec, district of Montreal. The
applicant is seeking to initiate a class action suit and to
certify and represent a class of persons who were shareholders
at May 21, 2010 and who sold their common shares on May 25
or 26, 2010. This applicant alleges that we did not comply with
our continuous disclosure obligations as a reporting issuer by
failing to disclose certain alleged adverse effects relating to
the administration of
EGRIFTAtm.
We are of the view that the allegations contained in the motion
are entirely without merit and intend to take all appropriate
actions to vigorously defend our position. The Motion has not
yet been heard by the Superior Court of Québec and no date
has been set for the hearing. We have subscribed for insurance
covering our potential liability and the potential liability of
our directors and officers in the performance of all their
duties for us subject to a $200,000 deductible and standard
terms, conditions and exclusions.
We are not otherwise currently subject to any material legal
proceedings.
63
MANAGEMENT
Directors and
Executive Officers
The following table sets forth information about our executive
officers and directors.
|
|
|
|
|
NAME AND PLACE OF RESIDENCE
|
|
AGE
|
|
POSITION WITH THE CORPORATION
|
|
Paul Pommier
(1)(2)(3)(4)(5)
Québec, Canada
|
|
68
|
|
Chairman of the Board
|
John-Michel T. Huss
(4)
Québec, Canada
|
|
46
|
|
President and Chief Executive Officer and Director
|
Gilles Cloutier
(3)(5)
North Carolina, United States
|
|
66
|
|
Director
|
A. Jean de Grandpré
(2)(3)(4)(5)
Québec, Canada
|
|
89
|
|
Director
|
Robert G. Goyer
(3)
Québec, Canada
|
|
72
|
|
Director
|
Gérald A. Lacoste
(1)(3)(5)
Québec, Canada
|
|
67
|
|
Director
|
Bernard Reculeau
(2)
Paris, France
|
|
60
|
|
Director
|
Jean-Denis Talon
(1)(2)(4)
Québec, Canada
|
|
69
|
|
Director
|
Luc Tanguay
(4)
Québec, Canada
|
|
52
|
|
Senior Executive Vice President and Chief Financial Officer and
Director
|
Marie-Noël Colussi
Québec, Canada
|
|
42
|
|
Vice President, Finance
|
Chantal Desrochers
Québec, Canada
|
|
56
|
|
Vice President, Business Development and Commercialization
|
Andrea Gilpin
Québec, Canada
|
|
41
|
|
Vice President, Investor Relations and Communications
|
Jocelyn Lafond
Québec, Canada
|
|
43
|
|
Vice President, Legal Affairs, and Corporate Secretary
|
Christian Marsolais
Québec, Canada
|
|
48
|
|
Vice President, Clinical Research and Medical Affairs
|
Martine Ortega
Québec, Canada
|
|
55
|
|
Vice President, Compliance and Regulatory Affairs
|
Pierre Perazzelli
Québec, Canada
|
|
59
|
|
Vice President, Pharmaceutical Development
|
Krishna Peri
Québec, Canada
|
|
56
|
|
Vice President, Research
|
Notes:
|
|
|
(1) |
|
Member of the Audit Committee.
|
(2) |
|
Member of the Compensation
Committee.
|
(3) |
|
Member of the Nominating and
Corporate Governance Committee.
|
(4) |
|
Member of the Finance Committee.
|
(5) |
|
Member of the Strategic Review
Committee.
|
Paul Pommier, MBA. Chairman of the
Board. Mr. Paul Pommier worked for more than
25 years at National Bank Financial Inc., his last position
being Senior Executive Vice President, Corporate and Government
Finance. Throughout his career, he oversaw public and private
financings, mergers and acquisitions, as well as the marketing
64
of investment offerings. Under his leadership, National Bank
Financial Inc. developed notable expertise in tax-shelter
financings.
John-Michel T. Huss, MBA. President & Chief
Executive Officer. John-Michel T. Huss brings more than
20 years of global experience in the pharmaceutical
industry to Theratechnologies. He began his career at
Merck & Co., occupying various sales and marketing
positions in the United States and in Europe. In 1996, he
accepted an International Product Manager position at the
headquarters of F. Hoffman-La Roche, in Basel, Switzerland.
Mr. Huss joined Sanofi-Synthelabo GmbH in 1999, where he
held positions in Germany and in Canada. He was appointed
General Manager of the Swiss subsidiary at Sanofi in 2007
(Sanofi-Synthelabo merged with Aventis in 2004), and in 2009 was
promoted to the position of Chief of Staff, Office of the CEO,
in Paris.
Gilles Cloutier, Ph.D. Corporate
Director. Dr. Gilles Cloutier has over
30 years of experience in the pharmaceutical industry
including five years with contract research organizations,
providing strategic support to biotechnology and pharmaceutical
companies. Dr. Cloutier has also held key positions with
large
North-American
pharmaceutical companies, where he developed expertise in the
field of clinical research. His experience includes the
development and approval of several drugs in Canada, the United
States and Europe. Dr. Cloutier sits on our board of
directors and is also Chairman of the Fondation André
Delambre for amyotrophic lateral sclerosis (ALS).
A. Jean de Grandpré, C.C., Q.C. Corporate
Director. A. Jean de Grandpré contributed to Bell
Canadas significant growth as Chairman of the Board and
Chief Executive Officer, and went on to become the founding
Chairman of the Board and Chief Executive Officer of BCE. In
recognition of these achievements, he was inducted into the
Canadian Business Hall of Fame. Mr. de Grandpré also served
on the boards of directors of other important Canadian and
US corporations, namely Northern Telecom Limited, Chrysler
Corporation, Sun Life Financial Inc. and Toronto Dominion Bank,
and as a member of the international advisory boards of Chemical
Bank and Goldman Sachs. He has been a member of our board of
directors since our founding in October 1993 and was appointed
Chairman in 1996. He resigned his position as Chairman in March
2007.
Robert G. Goyer, Ph.D. Emeritus professor,
Faculty of Pharmacy of the Université de
Montréal. Dr. Goyer has more than
40 years of experience in the pharmaceutical field.
Dr. Goyer is the former president of Jouveinal Canada and
is also a former dean of the Faculty of Pharmacy of
Université de Montréal. Recognized for his broad
expertise in drug development, he has served on the boards of
several companies and governmental organizations. He was notably
Chairman of the Advisory Committee on drug approval procedures
of Health Canadas Therapeutic Products Directorate and a
member of the board of directors of the Régie de
lassurance maladie du Québec. He was Chairman of the
Conseil du médicament du Québec from 2003 to 2005.
Gérald A. Lacoste, Q.C. Corporate
Director. Gérald A. Lacoste is a lawyer with
extensive experience in the fields of securities regulation,
financing and corporate governance. He was previously Chairman
of the Québec Securities Commission (now known as the
Autorité des marchés financiers) and was also
President and CEO of the Montreal Stock Exchange. During his
career, Mr. Lacoste acted as legal counsel to the Canadian
Standing Senate Committee on Banking, Trade and Commerce, he
chaired the Québec Advisory Committee on Financial
Institutions, and was a member of the task force on the
capitalization of life insurance companies in Québec.
Mr. Lacoste is currently a corporate director, actively
involved in the biotechnology industry, and is a member of the
North American Free Trade Agreement (NAFTA) arbitration panel.
Bernard Reculeau. Corporate
Director. Mr. Bernard Reculeau brings over
25 years of pharmaceutical industry experience to
Theratechnologies. From September 2006 to December 2009, he was
the President of CIS Bio International, a French company
specializing in nuclear medicine and biomedical technologies.
Prior to joining CIS Bio International, Mr. Reculeau was
Senior Vice President Pharmaceutical Operations of Sanofi for
the InterContinental Region. In his previous functions, he was
responsible for product development and commercialization in
numerous countries around the world. Mr. Reculeau has close
to 25 years in pharmaceutical operations, notably in France
where he ran the pharmaceutical operations for
Rhône-Poulenc and Rhône-Poulenc Rorer as well as in
other countries in the European Union. Mr. Reculeau retired
in early 2010.
Jean-Denis Talon. Chairman of the Board, AXA
Canada. Mr. Jean-Denis Talon had a successful
career with AXA Insurance over a period of more than
20 years, ultimately becoming President and Chief Executive
Officer. He is currently Chairman of the Board of AXA Canada.
Mr. Talon is also former President of the Financial Affairs
Committee at the Insurance Bureau of Canada.
65
Luc Tanguay, M.Sc., CFA. Senior Executive Vice
President and Chief Financial Officer of the Company.
Mr. Luc Tanguay has been active in the biotechnology
industry for over 15 years. As a member of our senior
management since 1996, he has contributed to our growth by
facilitating access to public and private capital funding. A
member of the board of directors since 1993, he has held various
management positions since joining the Company. Prior to joining
us, Mr. Tanguay had a career in investment banking at
National Bank Financial Inc.
Marie-Noël Colussi, CA. Vice President,
Finance. Ms. Marie-Noël Colussi is a graduate
of Université du Québec à Montréal in
business administration. Prior to joining us, Ms. Colussi
worked for eight years with KPMG, a major accounting firm.
Ms. Colussi has experience in accounting, auditing, control
and taxation, particularly in research and development. She
joined us in March 1997, and prior to her appointment as Vice
President, Finance in February 2002, she held the positions of
Director, Accounting and Internal Control and Controller.
Chantal Desrochers, B.Ph., MBA. Vice President,
Business Development and
Commercialization. Ms. Chantal Desrochers obtained
her degrees in pharmacy and business from the Université de
Montréal. She began her career at Schering-Plough in sales
and ultimately became a Product Director. After obtaining her
M.B.A., Ms. Desrochers joined Bristol-Myers Squibb Company
in Canada as Marketing Director, Pharmaceuticals and became Vice
President, Institutional Business in 1995. In 1997,
Ms. Desrochers was promoted to European Franchise Marketing
Director, Cardiovascular, in France where she contributed to the
commercial development of cardiovascular products. This led to
her appointment as International Marketing Director,
Cardiovascular, at Bristol-Myers Squibb in Princeton, New
Jersey. Prior to joining us in 2005, Ms. Desrochers offered
consulting services in business development and product
development strategies.
Andrea Gilpin, Ph.D., MBA. Vice President,
Investor Relations and Communications. Prior to joining
us in 2007, Dr. Gilpin was Director, Investor Relations at
MethylGene Inc. and held various positions at biotechnology
companies. Dr Gilpin has a Ph.D. (Genetics/Biochemistry) from
the University of Toronto and an MBA from the Asper School of
Business.
Jocelyn Lafond, LL.B., LL.M. Vice President, Legal
Affairs, and Corporate Secretary. Mr. Lafond has
over 15 years of experience in the fields of corporate and
securities law. Mr. Lafond holds a law degree from
Université Laval and a Masters Degree in Law from the
University of Toronto. He has been a member of the Barreau du
Québec since 1992. Prior to joining us in 2007,
Mr. Lafond was a partner with the international law firm of
Fasken Martineau DuMoulin LLP.
Christian Marsolais, Ph.D. Vice President,
Clinical Research and Medical
Affairs. Dr. Christian Marsolais has over
15 years of experience in clinical research for large
pharmaceutical companies, such as Sandoz Canada Inc. and BioChem
Therapeutics Inc. Before joining us in 2007, Dr. Marsolais
held various positions at Pfizer Global Pharmaceuticals, where
he was appointed Director of Medical Affairs, Therapeutic Areas,
in 2004. In this position, Dr. Marsolais was responsible
for the clinical program and scientific initiatives development,
as well as the integration of the Scientific Affairs and
Clinical Research for the oncology and HIV Franchise.
Dr. Marsolais holds a Ph.D. in Biochemistry from the
Université de Montréal.
Martine Ortega, Pharm. D. Vice President, Compliance
and Regulatory Affairs. Ms. Martine Ortega joined
us in 2006. A graduate in pharmacy from the Université
dAix-Marseille II, she holds a postdoctoral degree in
dermatology. Ms. Ortega has close to 20 years of
experience in the pharmaceutical industry, where she has gained
knowledge of the drug development process. During her career,
she has acquired broad expertise in GLP, GCP and GMP practices
and procedures as well as in computerized systems validation.
She is also experienced in relations with US, European and
Canadian regulatory agencies. Prior to joining us, she held
senior management positions at Ventana Clinical Research
Corporation, MDS Pharma Services and Sandoz Canada Inc.
Pierre Perazzelli, B. Sc. Vice President,
Pharmaceutical Development. A graduate of
Université Laval, Mr. Perazzelli has been working in
the pharmaceutical manufacturing industry for over
20 years. Throughout his career, he has held various
positions in large pharmaceutical companies, including Bristol
Myers Squibb and Abbott Laboratories, Ltd. He was Director of
the LAB Laboratory, a research centre specializing in
pharmaceutical formulation. He is also experienced in the
production of generic drugs. Mr. Perazzelli joined us in
May 2000.
Krishna Peri, Ph.D. Vice President,
Research. Co-inventor of the
ExoPeptm
technology and a founder of Pharma-G, Dr. Krishna Peri
holds a Ph.D. in biochemistry from the University of
Saskatchewan, Canada. He pursued post-doctoral research in
cancer as an NCI fellow at McGill University and at Ste. Justine
Hospital Research Center. After
66
our acquisition of Pharma-G in 2000, he served as director of
discovery research, and was subsequently appointed
Vice-President, Research, in June 2004.
Term of Our
Executive Officers
Each of our executive officers has been appointed by our board
of directors and serves until his or her successor is duly
appointed and qualified.
Term of Our Board
of Directors
Our directors are elected at the annual meeting of shareholders
for one-year terms and remain in office until the next annual
meeting of shareholders, unless a director resigns or a
directors position becomes vacant following his death or
removal or for any other reason before the next annual meeting
of shareholders. Our articles of incorporation provide that the
board of directors must have a minimum of three and a maximum of
20 directors. Our board of directors currently consists of
nine directors.
Committees of Our
Board of Directors
Our board of directors has established an Audit Committee, a
Compensation Committee, a Nominating and Corporate Governance
Committee, a Finance Committee and a Strategic Review Committee
to assist the directors in carrying out their responsibilities.
Audit
Committee
Our board of directors has established an Audit Committee
composed of three members: Paul Pommier, its chairman,
Jean-Denis Talon and Gérald A. Lacoste. All three are
independent within the meaning of applicable securities laws and
as independence is defined by Nasdaq and financially
literate. Each member of the Audit Committee has acquired
in-depth financial expertise giving each the ability to read and
understand a set of financial statements which present the
breadth and level of complexity of accounting issues that are
generally comparable to those that can reasonably be expected to
be raised in our financial statements.
The Audit Committee is responsible for assisting our board of
directors in overseeing the following:
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the integrity of our financial statements and related
information;
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our internal control systems;
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the appointment and performance of the external auditor; and
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the supervision of our risk management.
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Compensation
Committee
Our board of directors has established a Compensation Committee
composed of four members: Jean-Denis Talon, its chairman, A.
Jean de Grandpré, Paul Pommier and Bernard Reculeau. All
four are independent within the meaning of applicable securities
laws and as independence is defined by Nasdaq.
The Compensation Committee is responsible for assisting our
board of directors in overseeing the following:
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compensation of senior management;
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assessment of senior management;
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compensation of directors;
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stock option and deferred share unit grants; and
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overall increase in total compensation.
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Nominating and
Corporate Governance Committee
Our board of directors has established a Nominating and
Corporate Governance Committee composed of five members:
Gérald A. Lacoste, its chairman, Gilles Cloutier, Jean de
Grandpré, Robert G. Goyer and Paul Pommier.
67
All five are independent within the meaning of applicable
securities laws and as independence is defined by
the Nasdaq.
The Nominating and Corporate Governance Committee is responsible
for assisting our board of directors in overseeing the following:
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recruitment of candidates for the board;
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review of the size of the board;
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composition of the board;
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function of the board;
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orientation and education of board members; and
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governance.
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Finance
Committee
Our board of directors has established a Finance Committee
composed of five members: Paul Pommier, its chairman, A. Jean de
Grandpré, John-Michel T. Huss, Jean-Denis Talon and Luc
Tanguay.
The responsibilities of the Finance Committee are to study,
analyze and present recommendations to our board of directors on
financing matters.
Strategic
Review Committee
Our board of directors has established a Strategic Review
Committee composed of four members: Paul Pommier, its chairman,
Gilles Cloutier, Jean de Grandpré and Gérald A.
Lacoste.
The responsibilities of the Strategic Review Committee are to
oversee, analyze and recommend to our board of directors our
business strategies.
Employment
Agreements
Each of our executive officers has entered into an employment
agreement with us. Each employment agreement has an indefinite
term. Each employment agreement determines the annual salary of
the executive officer subject to annual review by the
Compensation Committee. In addition to
his/her
respective base salary, each executive officer is entitled to
our benefits program and is eligible to receive an annual bonus
based on the attainment of annual objectives. If we terminate
the employment of any of our executive officers without just and
sufficient cause, or, except in the case of Christian Marsolais,
Andrea Gilpin, Chantal Desrochers, Pierre Perazzelli, Krishna
Peri and Marie-Noël Colussi, in the event of a change of
control, the executive officer in question is entitled to
receive an amount equal to between 6 and 24 months of his
or her annual base salary.
On August 31, 2010, we entered into an employment agreement
with Mr. John-Michel T. Huss, our President and Chief
Executive Officer. Under the terms of the employment agreement,
Mr. Huss is entitled to an annual base salary of $600,000
(to be reviewed annually) and is eligible to receive an annual
bonus representing 100% of his base salary. He is also entitled
to receive 250,000 stock options vesting in equal tranches over
four years, which were granted to him as of the effective date
of his employment, and to receive a number of share units
redeemable for an amount equivalent to the value of a common
share, equal in value to $250,000 for each of the first four
years of his employment.
In his employment agreement, Mr. Huss agreed to customary
non-competition, non-solicitation, non-disclosure and assignment
of intellectual property provisions. If we terminate
Mr. Husss employment without just cause, he will be
entitled to receive an indemnity payment of $1.5 million.
Furthermore, in the event of a change of control of
Theratechnologies, if Mr. Husss employment is
terminated or he resigns, his employment agreement provides for
an indemnity payment equal to twice his base salary and twice
his last bonus entitlement (the bonus entitlement for 2011 until
he has been with us for a full year). Mr. Huss is also
entitled to a number of relocation-related benefits in 2011.
Related Party
Transactions
We are not aware that any of our directors, officers, other
insiders or any persons associated with or otherwise related to
any of the foregoing has had an interest in any material
transaction carried out since the beginning of the
68
most recently completed financial year or in any proposed
transaction which has materially affected or is likely to
materially affect us or any of our subsidiaries.
69
PRINCIPAL
SHAREHOLDERS
The following table shows information known to us with respect
to the beneficial ownership of our common shares by:
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each of our directors;
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each of our chief executive officer, chief financial officer and
our three other most highly compensated executive officers
during our last completed fiscal year, or Named Executive
Officers; and
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all of our directors and executive officers as a group.
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To our knowledge, no person or group or affiliated persons known
by us is the beneficial owner of more than 10% of our common
shares other than Stewardship Partners Investment Counsel Inc.
who, based exclusively on a report filed on the Canadian System
for Electronic Document Analysis and Retrieval, or SEDAR, on
July 6, 2010, holds approximately 10.1%.
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NUMBER OF COMMON SHARES
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NAME OF BENEFICIAL OWNER
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BENEFICIALLY
OWNED (1)
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Directors and Named Executive Officers
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Paul Pommier
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190,100
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John-Michel T. Huss
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Gilles Cloutier
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71,000
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A. Jean de Grandpré
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200,000
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Robert G. Goyer
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10,000
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Gérald A. Lacoste
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11,000
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Bernard Reculeau
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18,100
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Jean-Denis Talon
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60,000
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Luc Tanguay
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83,000
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Chantal Desrochers
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16,300
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Christian Marsolais
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8,597
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Martine Ortega
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3,000
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All directors and executive officers as a group (17 persons)
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723,972
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(1) |
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Does not include any options held.
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70
DESCRIPTION OF
SHARE CAPITAL
We are authorized to issue an unlimited number of common shares
and an unlimited number of preferred shares issuable in series.
Subject to the priority rights of holders of preferred shares,
holders of common shares are entitled to any dividend declared
by the board of directors, to one vote per share at meetings of
our shareholders and, in the event of our liquidation or
dissolution, to participate in the distribution of the assets.
Preferred shares carry no voting rights. Preferred shares may be
issued at any time in one or more series. Our articles of
incorporation give our board of directors the power to fix the
number of preferred shares and the consideration per share, as
well as to determine the provisions attached to the preferred
shares of each series (including dividends, redemption and
conversion rights, if any). The shares of every series of
preferred shares will have priority over all of our other
shares, including common shares, with respect to the payment of
dividends and return of capital in the event of our liquidation
or dissolution.
The common shares issued represent the total voting rights
pertaining to our securities.
Shareholder
Rights Plan
On February 10, 2010, we entered into a shareholder rights
plan agreement, or Rights Plan. The Rights Plan entitles a
holder of rights (other than the Acquiring Person, as defined
below, or any affiliate or associate of an Acquiring Person or
any person acting jointly or in concert with an Acquiring Person
or any affiliate or associate of an Acquiring Person) to
purchase our common shares at a discount of 50% to the market
price upon a person becoming an Acquiring Person,
subject to certain exceptions and the terms and conditions set
out in the Rights Plan. An Acquiring Person is
defined in the Rights Plan as a beneficial owner of 20% or more
of our common shares. The Rights Plan will expire at the close
of our annual meeting of shareholders in 2013.
In order to implement the Rights Plan, we issued one right in
respect of each common share outstanding as of 6:00 p.m.
(Montreal time) on February 9, 2010, the Effective
Date. One right will also be issued and attached to each
subsequently issued common share, including the common shares
issued pursuant to this offering. The rights will separate and
trade separately from the common shares to which they are
attached and will become exercisable after the Separation
Time, as defined below:
The Separation Time is the close of business on the
tenth business day following the earliest of:
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(a)
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the date of the first public announcement made by us or an
Acquiring Person that a person has become an Acquiring Person;
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(b)
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the date of the commencement of, or first public announcement of
the intent of any Person to commence, a take-over bid (other
than a Permitted Bid (as defined in the Rights Plan) or a
Competing Permitted Bid (as defined in the Rights Plan)) by any
person for our common shares;
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(c)
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the date upon which a Permitted Bid or Competing Permitted Bid
ceases to be such; or
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(d)
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such later date as may be determined by the board of directors.
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After the time at which a person becomes an Acquiring Person,
and subject to the terms and conditions set out in the
shareholder rights plan agreement, each right would, upon
exercise, entitle a rights holder, other than the Acquiring
Person and related persons, to purchase common shares at a 50%
discount to the market price at the time.
Under the Rights Plan, a Permitted Bid is a bid made
to all holders of the common shares and which is open for
acceptance for not less than 60 days. If at the end of
60 days at least 50% of the outstanding common shares,
other than those owned by the offeror and certain related
parties, have been tendered, the offeror may take up and pay for
the common shares but must extend the bid for a further
10 days to allow other shareholders to tender.
71
PRIOR
SALES
During the
12-month
period prior to the date of this prospectus, we issued the
following common shares and granted the following options.
Unless otherwise indicated, all common shares were issued upon
exercise of stock options and all options were granted under our
compensation plans.
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PRICE PER
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NUMBER OF
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DATE
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TYPE OF SECURITY
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SECURITY ($)
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SECURITIES
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February 2, 2010
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Common shares
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1.80
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500
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February 3, 2010
|
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Common shares
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1.80
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1,000
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February 12, 2010
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Common shares
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1.80
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666
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February 23, 2010
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Common shares
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1.80
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666
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March 11, 2010
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Common shares
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1.80
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333
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March 23, 2010
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Common shares
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1.80
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|
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166
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March 31, 2010
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Common shares
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1.80
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|
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666
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April 1, 2010
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Common shares
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1.85
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6,667
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April 1, 2010
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Common shares
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1.20
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6,667
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April 7, 2010
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Common shares
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1.80
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666
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April 14, 2010
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Common shares
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1.80
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5,833
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April 28, 2010
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Common shares
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1.80
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|
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1,000
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May 10, 2010
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Common shares
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1.80
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500
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May 10, 2010
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Common shares
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1.20
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7,500
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May 11, 2010
|
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Common shares
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1.80
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2,332
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May 11, 2010
|
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Common shares
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1.85
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1,667
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May 11, 2010
|
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Common shares
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5.00
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2,880
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(1)
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June 8, 2010
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Stock options
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4.75
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(2)
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70,000
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(3)
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June 14, 2010
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Common shares
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1.84
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10,000
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June 29, 2010
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Common shares
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1.80
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500
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July 15, 2010
|
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Common shares
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|
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|
1.80
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1,666
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July 15, 2010
|
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|
Common shares
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|
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|
1.42
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10,000
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July 30, 2010
|
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Common shares
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|
1.80
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|
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166
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September 1, 2010
|
|
|
Common shares
|
|
|
|
1.80
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|
|
|
166
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|
September 20, 2010
|
|
|
Common shares
|
|
|
|
1.80
|
|
|
|
1,666
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|
November 16, 2010
|
|
|
Common shares
|
|
|
|
1.80
|
|
|
|
166
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|
November 19, 2010
|
|
|
Common shares
|
|
|
|
1.80
|
|
|
|
500
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|
November 24, 2010
|
|
|
Common shares
|
|
|
|
1.80
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|
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500
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December 1, 2010
|
|
|
Stock options
|
|
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|
5.65
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(2)
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250,000
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(3)
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December 23, 2010
|
|
|
Common shares
|
|
|
|
1.80
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|
|
|
667
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|
January 11, 2011
|
|
|
Common shares
|
|
|
|
1.80
|
|
|
|
667
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|
January 13, 2011
|
|
|
Common shares
|
|
|
|
1.80
|
|
|
|
1,000
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|
January 24, 2011
|
|
|
Common shares
|
|
|
|
1.80
|
|
|
|
666
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Notes:
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(1) |
|
Number of common shares issued
under our employee stock purchase plan.
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(2) |
|
Exercise price per common share.
|
(3) |
|
Number of common shares issuable
upon the exercise of outstanding options.
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72
CERTAIN MATERIAL
INCOME TAX CONSIDERATIONS
Certain Canadian
Federal Income Tax Considerations
The following summary fairly describes the principal Canadian
federal income tax considerations generally applicable to a
purchaser who acquires as a beneficial owner common shares
pursuant to this offering and who, at all relevant times, for
the purposes of the Income Tax Act (Canada) and the Income Tax
Regulations (collectively the Tax Act),
(i) deals at arms length with Theratechnologies,
(ii) is not affiliated with Theratechnologies, and
(iii) holds his, her or its common shares as capital
property (a Holder). Common shares will generally be
considered to be capital property to a purchaser provided the
purchaser does not acquire or hold the shares in the course of
carrying on a business or as part of an adventure or concern in
the nature of trade.
This summary does not apply to a purchaser (i) that is a
specified financial institution, (ii) that is a
financial institution for purposes of certain rules
referred to as the
mark-to-market
rules, (iii) an interest in which is a tax shelter
investment, or (iv) that reports its Canadian
tax results in a currency other than Canadian currency,
each as defined in the Tax Act. Such a holder should consult
his, her or its own tax advisors to the purchase of common
shares pursuant to this offering.
This summary is based on the current provisions of the Tax Act
and an understanding of the current administrative policies and
assessing practices of the Canada Revenue Agency published in
writing prior to the date hereof. This summary takes into
account all specific proposals to amend the Tax Act that have
been publicly announced by, or on behalf of, the Minister of
Finance (Canada) prior to the date hereof (the Proposed
Amendments). This summary assumes that the Proposed
Amendments will be enacted in the form proposed. This summary
does not otherwise take into account or anticipate any other
changes in law or administrative policy or assessing practice,
whether by way of judicial, legislative or administrative
action, nor does it take into account provincial, territorial or
foreign tax legislation or considerations, which may differ from
those discussed in this summary. No assurance can be given that
the Proposed Amendments will be enacted in the form proposed or
at all.
This summary is of a general nature only and is not exhaustive
of all possible Canadian federal income tax considerations. This
summary is not intended to constitute legal or tax advice to any
particular shareholder. Accordingly, prospective purchasers
should consult their own tax advisors regarding their own
particular circumstances.
Generally, for the purposes of the Tax Act, all amounts relating
to the acquisition, holding and disposition of the common shares
must be converted into Canadian dollars based on the exchange
rates as determined in accordance with the Tax Act. The amount
of dividends required to be included in the income of, and
capital gains or capital losses realized by, a Holder may be
affected by fluctuations in the Canadian / U.S dollar
exchange rate.
Taxation of
Resident Holders
This portion of the summary is applicable to Holders who, at all
relevant times, for the purposes of the Tax Act, are, or are
deemed to be, resident in Canada (the Resident
Holders).
Certain Resident Holders may, in certain circumstances, be
entitled to make or may have already made the irrevocable
election under subsection 39(4) of the Tax Act to have the
common shares and every other Canadian security (as defined in
the Tax Act) owned by them in the taxation year of the election
and in all subsequent taxation years deemed to be capital
property. Resident Holders whose common shares might not
otherwise be considered to be capital property should consult
their own tax advisors for advice concerning this election.
In the case of a Resident Holder who is an individual (other
than certain trusts), any dividends received or deemed to be
received on the common shares will be included in computing the
individuals income for a taxation year and will be subject
to the
gross-up and
dividend tax credit rules applicable to taxable dividends paid
by taxable Canadian corporations. Provided that appropriate
designations are made by us at the time a dividend is paid, such
dividend will be treated as an eligible dividend for the
purposes of the Tax Act and a Resident Holder will be entitled
to an enhanced gross up and dividend tax credit in respect of
such dividend.
In the case of a Resident Holder that is a corporation, any
dividends received or deemed to be received on the common shares
will be included in computing the corporations income and
will generally be deductible in computing its taxable income. A
Resident Holder that is a private corporation as
defined in the Tax Act or a
73
corporation that is controlled, whether because of a beneficial
interest in one or more trusts or otherwise, by or for the
benefit of an individual (other than a trust) or a related group
of individuals (other than trusts) will generally be liable to
pay a refundable tax of
331/3%
of the dividends received on the common shares to the extent
that such dividends are deductible in computing the
corporations taxable income for the taxation year.
Generally, a Resident Holder who disposes of, or is deemed to
have disposed of, a common share will realize a capital gain (or
a capital loss) equal to the amount by which the proceeds of
disposition of the common share, net of any reasonable costs of
disposition, exceed (or are exceeded by) the adjusted cost base
of the common share. The adjusted cost base of a common share
acquired pursuant to this offering will be determined by
averaging the cost of such common share with the adjusted cost
base of all other common shares owned by the Resident Holder as
capital property at that time.
Generally, one-half of any capital gain (a taxable capital
gain), realized by a Resident Holder in a taxation year
must be included in the Resident Holders income for the
year and one-half of any capital loss (an allowable
capital loss), realized by a Resident Holder in a taxation
year may be deducted from taxable capital gains realized in the
year. Allowable capital losses in excess of taxable capital
gains for that year may be carried back three years or forward
indefinitely, in the circumstances and to the extent provided by
the Tax Act. The amount of any capital loss realized by a
Resident Holder that is a corporation on a disposition or deemed
disposition of common shares may be reduced by the amount of
dividends previously received or deemed to be received thereon,
to the extent and under the circumstances prescribed in the Tax
Act. Analogous rules apply where a Resident Holder that is a
corporation is, directly or through a trust or partnership, a
member of a partnership or a beneficiary of a trust which owns
common shares. Such Resident Holder should consult their own
advisors.
A Resident Holder that throughout a relevant taxation year is a
Canadian-controlled private corporation, as defined in the Tax
Act, may be liable to pay an additional refundable tax of
62/3%
on certain investment income, including taxable capital gains
and dividends received or deemed to be received in respect of
the common shares (but not dividends that are deductible in
computing taxable income).
Taxation of
Non-Resident Holders
This portion of the summary is applicable to Holders who, at all
relevant times, are not, and are not deemed to be, resident in
Canada for the purposes of the Tax Act and who do not use or
hold, and are not deemed to use or hold, the common shares in
connection with carrying on business in Canada (each a
Non-Resident Holder). Special rules, which are not
discussed in this summary, may apply to a Non-Resident Holder
that is an insurer that carries on an insurance business in
Canada and elsewhere.
Amounts paid or credited to a Non-Resident Holder as dividends
or deemed dividends on the common shares will be subject to
withholding tax at a rate of 25%, subject to any reduction of
such rate of withholding to which the Non-Resident Holder is
entitled under any applicable income tax treaty. For example,
the rate of withholding tax on dividends is generally reduced to
15% under the Convention Between Canada and the United States of
America with Respect to Taxes on Income and Capital, signed
September 26, 1980, as amended, (the
U.S. Treaty) if the beneficial owner of the
dividends is resident in the United States for purposes of the
U.S. Treaty.
A Non-Resident Holder will not be subject to tax on a capital
gain realized on the disposition of a common share unless, at
the time of disposition, the common share constitutes taxable
Canadian property to the Non-Resident Holder and the
Non-Resident Holder is not entitled to relief under an
applicable income tax convention between Canada and the country
in which the Non-Resident Holder is resident. Generally, the
common share will not constitute taxable Canadian property to a
Non-Resident Holder at a particular time provided that the
common share is listed on a designated stock exchange (which
includes the TSX) at that time, unless, at any particular time
during the
60-months
period that ends at that time, (1) the Non-Resident Holder,
persons with whom the Non-Resident Holder did not deal at
arms length (within the meaning of the Tax Act), or the
Non-Resident Holder together with such persons, has owned 25% or
more of the issued shares of any class or series of our capital
stock and (2) more than 50% of the fair market value of the
common share was derived directly or indirectly from one or any
combination of: (i) real or immovable properties situated
in Canada, (ii) Canadian resource properties (as
defined in the Tax Act), (iii) timber resource
properties (as defined in the Tax Act), and
(iv) options in respect of, or interests in, or for civil
law rights in, property in any of the foregoing whether or not
the property exists. Notwithstanding the foregoing, in certain
circumstances set out in the Tax Act, common shares could be
deemed to
74
be taxable Canadian property. Non-Resident Holders whose common
shares may constitute taxable Canadian property should consult
their own tax advisors.
Certain U.S.
Federal Income Tax Considerations
The following is a general summary of certain U.S. federal
income tax considerations with respect to the acquisition,
ownership and disposition of common shares by a U.S. Holder
(as defined below). This summary applies to U.S. Holders
who acquire common shares in the Offering and hold those common
shares as a capital asset within the meaning of
Section 1221 of the U.S. Internal Revenue Code of
1986, as amended (the Code). This summary is based
upon the Code, regulations promulgated under the Code, the
U.S. Treaty, administrative rulings and judicial decisions
as in effect on the date of this prospectus, all of which are
subject to change, possibly with retroactive effect, and to
differing interpretations, which could result in
U.S. federal income tax considerations different from those
summarized below. No ruling from the Internal Revenue Service
(the IRS) has been requested or will be obtained
regarding the U.S. federal income tax consequences of the
acquisition, ownership and disposition of common shares. There
can be no assurance that the IRS will not challenge any of the
conclusions described herein or that a U.S. court will not
sustain such a challenge.
This summary is for general information purposes only, and does
not purport to be a complete analysis or listing of all
potential U.S. federal income tax considerations that may
apply to a U.S. Holder relating to the acquisition,
ownership and disposition of common shares. It does not address
the effects of any state or local taxes, or the tax consequences
in jurisdictions other than the United States nor any
U.S. federal estate, gift or generation-skipping transfer
tax. In addition, it does not address tax consequences that may
be relevant to a U.S. Holder in light of such holders
particular circumstances, including alternative minimum tax
consequences, nor does it address the special tax rules that
apply to certain classes of taxpayers, including but not limited
to the following:
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a person that owns, or is treated as owning under applicable
ownership attribution rules, 10% or more of the voting power of
Theratechnologies;
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a broker or dealer in securities or currencies;
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a trader in securities that elects to use a
mark-to-market
method of accounting;
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a bank, mutual fund, life insurance company or other financial
institution;
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a real estate investment trust, regulated investment company or
grantor trust;
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a tax-exempt organization;
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a qualified retirement plan or individual retirement account;
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a person that holds common shares as part of a straddle, hedge,
constructive sale or other integrated transaction for tax
purposes;
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a partnership, S corporation or other pass through entity;
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an investor in a partnership, S corporation or other pass
through entity;
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a person who received common shares in connection with the
performance of services;
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a person whose functional currency for U.S. federal income
tax purposes is not the U.S. dollar;
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U.S. tax expatriates and certain former citizens and
long-term residents of the United States;
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a person that has been, is or will be a resident or deemed to be
a resident in Canada for purposes of the Tax Act;
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a person whose common shares constitute taxable Canadian
property under the Tax Act; and
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a person who has a permanent establishment in Canada for
purposes of the U.S. Treaty or who uses or holds, or is
deemed to use or hold, the common shares in connection with
carrying on business in Canada.
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For purposes of this discussion, a U.S. Holder
is any beneficial owner of common shares that is:
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an individual citizen or resident of the United States;
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a corporation (or other entity classified as a corporation for
U.S. federal income tax purposes) that is created or
organized in or under the laws of the United States or any
political subdivision thereof;
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an estate the income of which is subject to U.S. federal
income taxation regardless of the source of such income; or
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a trust (1) that validly elects to be treated as a
U.S. person for U.S. federal income tax purposes, or
(2) the administration over which a U.S. court can
exercise primary supervision and all of the substantial
decisions of which one or more U.S. persons have the
authority to control.
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75
This summary does not address the U.S. federal income tax
considerations with respect to
non-U.S. Holders
arising from the acquisition, ownership and disposition of
common shares. A
non-U.S. Holder
is a beneficial owner of common shares that is not a
U.S. Holder.
If a partnership or other pass-through entity (including for
this purpose any entity or arrangement treated as a partnership
or pass-through entity for U.S. federal income tax
purposes) holds common shares, the tax treatment of a partner or
owner will generally depend upon the status of such partner or
owner and upon the activities of the partnership or other
pass-through entity. U.S. Holders who are partners or
owners of a partnership or other pass-through entity that owns
or may acquire common shares should consult their tax advisors
regarding the specific tax consequences of the acquisition and
ownership of common shares.
U.S. HOLDERS SHOULD CONSULT THEIR OWN ADVISORS REGARDING
THE TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE COMMON SHARES IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES.
Distributions
With Respect to Common Shares
Theratechnologies has never declared or paid dividends and does
not anticipate paying dividends in the foreseeable future.
However, subject to the discussion under
Passive Foreign Investment Company
below, the gross amount of distributions (including constructive
distributions), if any, paid on the common shares generally
would be treated as dividend income to the extent paid out of
Theratechnologiess current or accumulated earnings and
profits (as determined for U.S. federal income tax
purposes). A U.S. Holder would be required to include the
amount of such distribution in gross income as a dividend
(without reduction for any Canadian income tax withheld from
such distribution) on the day actually or constructively
received. Distributions to a U.S. Holder in excess of
earnings and profits will be treated first as a return of
capital that reduces a U.S. Holders tax basis in such
common shares (thereby increasing the amount of gain or
decreasing the amount of loss that a U.S. Holder would
recognize on a subsequent disposition of common shares), and
then as gain from the sale or exchange of such common shares. A
corporate U.S. Holder generally will not be entitled to a
dividends-received deduction that is otherwise available upon
the receipt of dividends distributed by U.S. corporations.
For taxable years beginning before January 1, 2013, a
dividend paid by Theratechnologies generally will be taxed at
the preferential tax rates applicable to long-term capital gains
if (a) Theratechnologies is a qualified foreign
corporation (as defined below), (b) the
U.S. Holder receiving such dividend is an individual,
estate, or trust, and (c) certain holding period
requirements are met. Theratechnologies generally will be a
qualified foreign corporation under
Section 1(h)(11) of the Code (a QFC) if it is
eligible for the benefits of a comprehensive income tax treaty
with the United States that the U.S. Treasury Department
determines to be satisfactory for these purposes. The
U.S. Treasury has determined that the U.S. Treaty
qualifies as such a treaty under the Code and Theratechnologies
believes that it is eligible for the benefits of the
U.S. Treaty. Furthermore, even if Theratechnologies is not
otherwise a QFC under this definition, Theratechnologies would
still be treated as a QFC with respect to any dividend paid by
Theratechnologies if the common shares with respect to which
such dividend is paid are readily tradable on an established
securities market in the United States. However, a dividend paid
by Theratechnologies will not be eligible for the preferential
tax rates applicable to long-term capital gains if
Theratechnologies is a passive foreign investment company (a
PFIC) for the taxable year during which such
dividend is paid or for the preceding taxable year. See below
under Passive Foreign Investment
Company for a discussion of Theratechnologiess
status under the PFIC rules.
The amount of a distribution paid to a U.S. Holder of
common shares in foreign currency generally will be equal to the
U.S. dollar value of such distribution based on the
exchange rate applicable on the date of receipt. A
U.S. Holder that does not convert foreign currency received
as a distribution into U.S. dollars on the date of receipt
generally will have a tax basis in such foreign currency equal
to the U.S. dollar value of such foreign currency on the
date of receipt. Such a U.S. Holder generally will
recognize ordinary income or loss on the subsequent sale or
other taxable disposition of such foreign currency (including an
exchange for U.S. dollars).
76
Sale or Other
Disposition of Common Shares
Subject to the discussion under Passive
Foreign Investment Company below, in general, a
U.S. Holder that sells or otherwise disposes of common
shares in a taxable disposition:
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will recognize gain or loss equal to the difference (if any)
between the U.S. dollar value of the amount realized on
such sale or other taxable disposition and such
U.S. Holders adjusted tax basis in such common shares;
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any gain or loss will be capital gain or loss and will be
long-term capital gain or loss if the holding period for the
common shares sold or otherwise disposed of is more than one
year at the time of such sale or other taxable
disposition; and
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any gain or loss will generally be treated as
U.S.-source
income for U.S. foreign tax credit purposes.
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Long-term capital gains of non-corporate taxpayers are taxed at
reduced rates. There are currently no preferential tax rates for
long-term capital gains of a U.S. Holder that is a
corporation. The deductibility of capital losses is subject to
limitations.
In the case of a cash-basis U.S. Holder (or an
accrual-basis U.S. Holder that makes an election referred
to in the following paragraph) who receives foreign currency,
such as Canadian dollars, in connection with a sale or other
taxable disposition of common shares, the amount realized will
be based on the
U.S.-dollar
value of the foreign currency received with respect to such
common shares, as determined on the settlement date of such sale
or other taxable disposition.
In the case of an accrual-basis U.S. Holder who receives
foreign currency, such as Canadian dollars, in connection with a
sale or other taxable disposition of common shares, the amount
realized generally will be based on the
U.S.-dollar
value of the foreign currency received with respect to such
common stock as determined on the trade date. An accrual-basis
U.S. Holder generally will recognize a foreign currency
gain or loss for U.S. federal income tax purposes to the
extent of difference between the
U.S.-dollar
value of the foreign currency on the trade date and the date of
payment. Any such currency gain or loss generally will be
treated as ordinary income or loss and would be in addition to
gain or loss, if any, recognized on the sale (or other taxable
disposition) of such common shares. An accrual-basis
U.S. Holder may generally elect the same treatment required
of a cash-basis taxpayer with respect to a sale or other taxable
disposition of such common shares, provided the election is
applied consistently from year to year. The election may not be
changed without the consent of the IRS.
Foreign Tax
Credit Considerations
A U.S. Holder who pays (whether directly or through
withholding) Canadian or other foreign income tax with respect
to the common shares may be entitled, at the election of such
U.S. Holder, to receive either a deduction or a credit for
such Canadian or other foreign income tax paid. However, the
foreign tax credit is subject to numerous complex limitations
that must be determined and applied on an individual basis.
Generally, the credit cannot exceed the proportionate share of a
U.S. Holders U.S. federal income tax liability
that such U.S. Holders foreign source
taxable income bears to such U.S. Holders worldwide
taxable income. In applying this limitation, a
U.S. Holders various items of income and deduction
must be classified, under complex rules, as either foreign
source or U.S. source. This limitation is
calculated separately with respect to specific categories of
income. Dividends paid by Theratechnologies on the common shares
generally would constitute foreign source income for
foreign tax credit purposes. However, all or a portion of the
dividends paid by a foreign corporation that is more than 50%
owned by U.S. persons will be treated as U.S. source
income for foreign tax credit purposes if the foreign
corporation itself has more than a small amount of
U.S. source income. The effect of this rule may be to treat
a portion of any dividends we pay as
U.S.-source
income. Treatment of the dividends as U.S. source income in
whole or in part may limit a U.S. Holders ability to
claim a foreign tax credit for the Canadian withholding taxes
payable in respect of the dividends. Similar limitations may
apply if Canada imposes income tax on a U.S. Holders gain.
Subject to certain limitations, the Code may permit a
U.S. Holder entitled to benefits under the U.S. Treaty
to elect to treat any dividends or
Canadian-taxed
gain as foreign source income for foreign tax credit purposes.
In addition, the amount of a distribution with respect to the
common shares that is treated as a dividend may be
lower for U.S. federal income tax purposes than it is for
Canadian income tax purposes, potentially resulting in a reduced
foreign tax credit for the U.S. Holder. The rules governing
the foreign tax credit are complex and their application
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depends on each taxpayers particular circumstances.
Accordingly, each U.S. Holder should consult its own tax
advisors regarding the foreign tax credit rules in light of
their particular circumstances.
Passive
Foreign Investment Company
PFIC Rules Generally. Special and generally
unfavourable U.S. federal income tax rules may apply to a
U.S. Holder if its holding period in the common shares
includes any period during which Theratechnologies is a PFIC. In
general terms, Theratechnologies will be a PFIC for any tax year
in which, after applying relevant look-through rules with
respect to the income and assets of its subsidiaries, either
(i) 75% or more of its gross income is passive income or
(ii) the average percentage, by fair market value, of its
assets that produce or are held for the production of passive
income is 50% or more. Passive income includes,
among other items, dividends, interest, certain rents and
royalties, certain gains from the sale of stock and securities
and certain gains from commodities transactions. Under
attribution rules, if Theratechnologies is a PFIC,
U.S. Holders will be deemed to own their proportionate
share of the stock of any subsidiaries of Theratechnologies that
are also PFICs (each, a Subsidiary PFIC), and will
be subject to the U.S. tax rules described below with
respect to their proportionate share of (a) a distribution
on the stock of a Subsidiary PFIC and (b) a disposition or
deemed disposition of the stock of a Subsidiary PFIC, both as if
such U.S. Holders directly held the shares of such
Subsidiary PFIC.
As described above, PFIC status for a taxable year depends upon
the relative values of certain categories of assets and the
relative amounts of certain kinds of income. Therefore, the
status of Theratechnologies and each of its subsidiaries as
PFICs depends upon the financial results for each year and upon
relative valuations, which are subject to change and beyond our
ability to predict or control. In addition, the application of
the relevant rules is subject to legal uncertainties. Given the
most recent available information regarding
Theratechnologiess 2010 financial position, results of
operations and its projections for the fiscal year ending
November 30, 2011, Theratechnologies does not expect to be
classified as a PFIC for the fiscal year ended November 30,
2010 and does not expect to become a PFIC in the foreseeable
future. However, there can be no assurance that the IRS will not
challenge the determination made by Theratechnologies concerning
its PFIC status or that Theratechnologies will not be a PFIC for
any taxable period because PFIC classification is fundamentally
factual in nature, is determined annually and generally cannot
be determined until the close of the taxable year in question.
As described below in greater detail (see QEF
Election), on an annual basis, Theratechnologies intends
to make available to U.S. Holders, upon their written request,
timely information as to the PFIC status of Theratechnologies
and of any subsidiary in which Theratechnologies owns more than
50% of such subsidiarys total voting power. The PFIC rules
are complex, and each U.S. Holder should consult its own
financial advisor, legal counsel or accountant regarding the
PFIC rules.
If Theratechnologies is a PFIC for any year, subject to the
special rules applicable to a U.S. Holder who makes a
Mark-to-Market
Election or a QEF Election (each as defined below), a
U.S. Holder who disposes or is deemed to dispose of common
shares at a gain or who receives a distribution treated as an
excess distribution on common shares generally would
be required to allocate such gain and distribution ratably to
each day in the U.S. Holders holding period for such
common shares. The portion of such amounts allocated to the
current tax year or to a year prior to the first year in which
Theratechnologies was a PFIC would be includible as ordinary
income in the current tax year. The portion of any such amounts
allocated to the first year in the U.S. Holders
holding period in which Theratechnologies was a PFIC and any
subsequent year or years (excluding the current year) would be
taxed at the highest marginal rate applicable to ordinary income
for each year (regardless of the U.S. Holders actual
marginal rate for that year and without reduction by any losses
or loss carryforwards) and would be subject to interest charges
to reflect the value of the U.S. federal income tax
deferral.
In accordance with the rules above, if Theratechnologies is or
was a PFIC at any time during the U.S. Holders
holding period, none of the gain recognized on the sale or other
disposition of common shares would be eligible for the
preferential long-term capital gains rate (see
Sale or Other Disposition of Common
Shares above). In addition, dividends generally will not
be qualified dividend income if Theratechnologies is a PFIC in
the year of payment or the preceding year.
Certain elections (including the
Mark-to-Market
Election and the QEF Election, as defined and discussed below)
may sometimes be used to reduce the adverse impact of the PFIC
rules on U.S. Holders, but these elections may accelerate
the recognition of taxable income and have other adverse results.
78
Mark-to-Market
Election. A U.S. Holder of common shares in a PFIC
would not be subject to the PFIC rules discussed above if the
U.S. Holder had made a timely and effective election to
mark the PFIC common shares to market (a
Mark-to-Market
Election).
A U.S. Holder may make a
Mark-to-Market
Election with respect to the common shares only if such shares
are marketable stock. Such shares generally will be
marketable stock if they are regularly traded on a
qualified exchange, which is defined as (a) a
national securities exchange that is registered with the SEC,
(b) the national market system established pursuant to
section 11A of the Exchange Act, or (c) a foreign
securities exchange that is regulated or supervised by a
governmental authority of the country in which the market is
located, provided that (i) such foreign exchange has
trading volume, listing, financial disclosure, and other
requirements, and the laws of the country in which such foreign
exchange is located, together with the rules of such foreign
exchange, ensure that such requirements are actually enforced
and (ii) the rules of such foreign exchange ensure active
trading of listed stocks. Theratechnologies common shares will
be treated as regularly traded in any calendar year
in which more than a de minimis quantity of common shares is
traded on a qualified exchange for at least 15 days during
each calendar quarter. Each U.S. Holder should consult its
own tax advisor with respect to the availability of a
Mark-to-Market
Election with respect to the common shares.
In general, a U.S. Holder that makes a timely
Mark-to-Market
Election with respect to the common stock will include in
ordinary income, for each taxable year in which
Theratechnologies is a PFIC, an amount equal to the excess, if
any, of (a) the fair market value of the common shares as
of the close of such taxable year over (b) such
U.S. Holders tax basis in such shares. A
U.S. Holder that makes a
Mark-to-Market
Election will be allowed a deduction in an amount equal to the
lesser of (a) the excess, if any, of (i) such
U.S. Holders adjusted tax basis in the common shares
over (ii) the fair market value of such shares as of the
close of such taxable year or (b) the excess, if any, of
(i) the amount included in ordinary income because of such
Mark-to-Market
Election for prior taxable years over (ii) the amount
allowed as a deduction because of such
Mark-to-Market
Election for prior taxable years. If a U.S. Holder makes a
Mark-to-Market
Election after the first taxable year in which Theratechnologies
is a PFIC and such U.S. Holder has not made a timely QEF
Election with respect to Theratechnologies, the PFIC rules
described above will apply to certain dispositions of, and
distributions on, the common shares, and the
U.S. Holders
mark-to-market
income for the year of the election. If Theratechnologies were
to cease being a PFIC, a U.S. Holder that marked its common
shares to market would not include
mark-to-market
gain or loss with respect to its common shares for any taxable
year that Theratechnologies was not a PFIC.
A U.S. Holder that makes a
Mark-to-Market
Election generally will also adjust such U.S. Holders
tax basis in his common shares to reflect the amount included in
gross income or allowed as a deduction because of such
Mark-to-Market
Election. In addition, upon a sale or other taxable disposition
of the common shares subject to a
Mark-to-Market
Election, any gain or loss on such disposition will be ordinary
income or loss (to the extent that such loss does not to exceed
the excess, if any, of (a) the amount included in ordinary
income because of such
Mark-to-Market
Election for prior taxable years over (b) the amount
allowed as a deduction because of such
Mark-to-Market
Election for prior taxable years). A
Mark-to-Market
Election applies to the taxable year in which such
Mark-to-Market
Election is made and to each subsequent taxable year, unless the
common shares cease to be marketable stock or the
IRS consents to revocation of such election. Each
U.S. Holder should consult its own tax advisor regarding
the availability of, and procedure for making, a
Mark-to-Market
Election with respect to the common shares.
Special adverse rules apply to U.S. Holders of common
shares for any year in which Theratechnologies is a PFIC and
holds stock in a Subsidiary PFIC. Although a U.S. Holder
may be eligible to make a
Mark-to-Market
Election with respect to the common shares if Theratechnologies
is a PFIC, no such election may be made with respect to the
stock of any Subsidiary PFIC that a U.S. Holder is treated
as owning if such stock is not marketable. Hence, the
Mark-to-Market
Election will not be effective to eliminate the deferred tax and
interest charge described above with respect to a disposition or
a deemed disposition of Subsidiary PFIC stock or a distribution
from a Subsidiary PFIC.
QEF Election. A U.S. Holder of common shares in
a PFIC generally would not be subject to the PFIC rules
discussed above if the U.S. Holder had made a timely and
effective election (a QEF Election) to treat
Theratechnologies as a qualified electing fund (a
QEF). Instead, such U.S. Holder would be
subject to U.S. federal income tax on its pro rata share of
Theratechnologiess (i) net capital gain, which would
be taxed as long-term capital gain to such U.S. Holder, and
(ii) ordinary earnings, which would be taxed as ordinary
income to such U.S. Holder, in each case regardless of
whether such amounts are actually distributed to such
U.S. Holder.
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However, a U.S. Holder that makes a QEF Election may,
subject to certain limitations, elect to defer payment of
current U.S. federal income tax on such amounts, subject to
an interest charge. If such U.S. Holder is not a
corporation, any such interest paid will be treated as
personal interest, which is not deductible.
A U.S. Holder that makes a timely and effective QEF
Election generally (a) may receive a tax-free distribution
from Theratechnologies to the extent that such distribution
represents Theratechnologiess earnings and
profits that were previously included in income by such
U.S. Holder because of such QEF Election and (b) will
adjust such U.S. Holders tax basis in the common
shares to reflect the amount included in income or allowed as a
tax-free distribution because of such QEF Election. In addition,
for U.S. federal income tax purposes, a U.S. Holder
that makes a QEF Election generally will recognize capital gain
or loss on the sale or other taxable disposition of the common
shares.
A QEF Election will be treated as timely if such QEF
Election is made for the first taxable year in the
U.S. Holders holding period for the common shares in
which Theratechnologies is a PFIC. A U.S. Holder may make a
timely QEF election by filing the appropriate QEF Election
documents at the time such U.S. Holder files a
U.S. federal income tax return for such first year. If a
U.S. Holder makes a QEF Election after the first taxable
year in the U.S. Holders holding period for the
common shares in which Theratechnologies is a PFIC, then, in
addition to filing the QEF Election documents, a
U.S. Holder may elect to recognize gain (which will be
taxed under the rules discussed under PFIC
Rules Generally) as if the common shares were sold on
the qualification date. The qualification date is
the first day of the first taxable year in which
Theratechnologies is a QEF with respect to such
U.S. Holder. The election to recognize such gain can only
be made if such U.S. Holders holding period for the
common shares includes the qualification date. By electing to
recognize such gain, such U.S. Holder will be deemed to
have made a timely QEF Election. In addition, under very limited
circumstances, it may be possible for a U.S. Holder to make a
retroactive QEF Election if such U.S. Holder failed to file the
QEF Election documents in a timely manner. If a U.S. Holder
fails to make a QEF Election for the first taxable year in the
U.S. Holders holding period for the common shares in
which Theratechnologies is a PFIC and does not elect to
recognize gain as if the common shares were sold on the
qualification date, such holder will not be treated as having
made a timely QEF election and will continue to be
subject to the special adverse taxation rules discussed above
under PFIC Rules Generally.
A QEF Election will apply to the taxable year for which such QEF
election is made and to all subsequent taxable years, unless
such QEF Election is invalidated or terminated or the IRS
consents to revocation of such QEF Election. If a
U.S. Holder makes a QEF Election and, in a subsequent
taxable year, Theratechnologies ceases to be a PFIC, the QEF
Election will remain in effect (although it will not be
applicable) during those taxable years in which
Theratechnologies is not a PFIC. Accordingly, if
Theratechnologies becomes a PFIC in another subsequent taxable
year, the QEF Election will be effective and the
U.S. Holder will be subject to the rules described above
during any such subsequent taxable year in which the
Theratechnologies qualifies as a PFIC.
A QEF Election applies only to the
non-U.S. corporation
for which it is made. If Theratechnologies is a PFIC, a
U.S. Holder would remain subject to the excess distribution
rules discussed above under PFIC
Rules Generally in respect of its indirectly owned
shares in each PFIC Subsidiary unless such U.S. Holder has
made a timely and effective QEF Election in respect of such PFIC
Subsidiary.
A U.S. Holder cannot make and maintain a valid QEF Election
unless Theratechnologies provides certain U.S. tax
information necessary to make such an election. On an annual
basis, Theratechnologies intends to make available to
U.S. Holders, upon their written request: (a) timely
information as to the PFIC status of Theratechnologies and of
any subsidiary in which Theratechnologies owns more than 50% of
such subsidiarys total voting power, and (b) for each
year in which Theratechnologies is a PFIC, all information and
documentation that a U.S. Holder making a QEF Election is
required to obtain for U.S. federal income tax purposes
with respect to Theratechnologies and any such Subsidiary PFIC
in which Theratechnologies owns more than 50% of the total
aggregate voting power. Because Theratechnologies may hold 50%
or less of the aggregate voting power of one or more Subsidiary
PFICs at any time, U.S. Holders should be aware that there
can be no assurance that Theratechnologies will satisfy record
keeping requirements that apply to such Subsidiary PFICs, or
that Theratechnologies will supply U.S. Holders with
information that such U.S. Holders require to report under
the QEF rules, in the event that Theratechnologies is a PFIC and
a U.S. Holder wishes to make a QEF Election with respect to
any such Subsidiary PFIC. With respect to Subsidiary PFICs for
which Theratechnologies does not or that U.S. Holders do
not obtain the required information, U.S. Holders will be
subject to the default PFIC rules discussed above under the
heading entitled PFIC
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Rules Generally. Each U.S. Holder should consult
its own tax advisor regarding the availability of, and procedure
for making, a QEF Election with respect to Theratechnologies and
any Subsidiary PFIC.
Reporting. A U.S. Holders ownership
of common shares in a PFIC generally must be reported by filing
Form 8621 with the U.S. Holders annual
U.S. federal income tax return. Every U.S. Holder who
is a shareholder in a PFIC must file an annual report containing
such information as may be required by the U.S. Department
of Treasury.
U.S. HOLDERS SHOULD CONSULT THEIR OWN ADVISORS REGARDING
THE TAX CONSEQUENCES OF THERATECHNOLOGIESS POTENTIAL
STATUS AS A PFIC, INCLUDING THE AVAILABILITY OF, CONSEQUENCES OF
AND PROCEDURE FOR MAKING A
MARK-TO-MARKET
ELECTION OR A QEF ELECTION, IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES.
Recent
Legislative Developments
Newly enacted legislation requires certain U.S. Holders
that are individuals, estates or trusts to pay up to an
additional 3.8% tax on dividends and capital gains for taxable
years beginning after December 31, 2012. In addition, for
taxable years beginning after March 18, 2010, new
legislation requires certain U.S. Holders who are
individuals that hold certain foreign financial assets (which
may include common shares of Theratechnologies) to report
information relating to such assets, subject to certain
exceptions. Failure to provide such information could result in
significant additional taxes and penalties. U.S. Holders
should consult their own tax advisors regarding the effect, if
any, of this legislation on acquisition, ownership and
disposition of common shares.
U.S.
Information Reporting and Backup Withholding
Under U.S. federal income tax law and Treasury Regulations,
certain categories of U.S. Holders must file information returns
with respect to their investment in, or involvement in, a
foreign corporation. Penalties for failure to file certain of
these information returns are substantial. U.S. Holders should
consult with their own tax advisors regarding the requirements
of filing information returns.
U.S. Holders of common shares may be subject to information
reporting and may be subject to backup withholding on
distributions on common shares or on the proceeds from a sale or
other disposition of common shares paid within the United States
or by
U.S.-related
financial intermediaries. Backup withholding will generally not
apply, however, to a U.S. Holder who:
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furnishes a correct taxpayer identification number and certifies
that the U.S. Holder is not subject to backup withholding
on IRS
Form W-9,
Request for Taxpayer Identification Number and Certification (or
substitute form) and otherwise complies with the backup
withholding rules; or
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is otherwise exempt from backup withholding.
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Backup withholding is not an additional tax. Any amounts
withheld from a payment to a holder under the backup withholding
rules may be credited against the holders
U.S. federal income tax liability, and a holder may obtain
a refund of any excess amounts withheld by filing the
appropriate claim for refund with the IRS in a timely manner.
Each U.S. Holder should consult its own tax advisor regarding
the information reporting and backup withholding rules.
81
UNDERWRITING
Subject to the terms and conditions set forth in the
underwriting agreement dated ,
2011, between us and Jefferies & Company, Inc., as
representative for the several underwriters, we have agreed to
sell to the underwriters and the underwriters have severally
agreed to purchase from us, the number of common shares
indicated in the table below:
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NUMBER OF
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UNDERWRITER
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COMMON SHARES
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Jefferies & Company, Inc.
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Stifel, Nicolaus & Company, Inc.
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RBC Dominion Securities Inc.
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BMO Nesbitt Burns Inc.
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Desjardins Securities Inc.
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National Bank Financial Inc.
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Total
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The underwriters are offering the common shares subject to their
acceptance of the common shares from us and subject to prior
sale. The underwriting agreement provides that the obligations
of the several underwriters are subject to certain conditions
precedent such as the receipt by the underwriters of
officers certificates and legal opinions and approval of
certain legal matters by their counsel. The underwriting
agreement provides that the underwriters will purchase all of
the shares if any of them are purchased. However, the
underwriters are not obligated to purchase any shares covered by
the underwriters over-allotment option described below. If
an underwriter defaults, the underwriting agreement provides
that the purchase commitments of the nondefaulting underwriters
may be increased or the underwriting agreement may be
terminated. The obligations of the underwriters under the
underwriting agreement may be terminated at the discretion of
the representative of the underwriters on the basis of its
assessment of the effect that certain changes in the United
States or international political, financial or economic
conditions may have on the market for the common shares. The
obligations of the underwriters may also be terminated upon the
occurrence of certain stated events.
We have agreed to indemnify the underwriters and certain of
their controlling persons against certain liabilities, including
liabilities under applicable securities legislation, and to
contribute to payments that the underwriters may be required to
make in respect of those liabilities.
The underwriters have advised us that they currently intend to
make a market in the common shares. However, the underwriters
are not obligated to do so and may discontinue any market-making
activities at any time without notice. No assurance can be given
as to the liquidity of the trading market for the common shares.
The underwriters are offering the common shares subject to their
acceptance of the shares from us and subject to prior sale. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
In addition, the underwriters have advised us that they do not
intend to confirm sales to any account over which they exercise
discretionary authority.
The Offering is being made concurrently in the United States and
Canada pursuant to the MJDS implemented by the securities
regulatory authorities in the United States and Canada. The
common shares will be offered in the United States through the
U.S. underwriters and in each of the provinces of Canada through
the Canadian underwriters either directly or through their
respective broker-dealer affiliates or agents, as applicable. No
securities will be offered or sold in any jurisdiction except by
or through brokers or dealers duly registered under the
applicable securities laws of that jurisdiction, or in
circumstances where an exemption from such registered dealer
requirements is available. Subject to applicable law, the
underwriters may offer the common shares outside of the United
States and Canada pursuant to prospectus exemptions.
The offering price of the common shares for investors will be
payable in U.S. dollars.
82
Commission and
Expenses
The underwriters have advised us that they propose to offer the
common shares to the public at the offering price set forth on
the cover page of this prospectus and to certain dealers at that
price less a concession not in excess of
US$ per common share. The
underwriters may allow, and certain dealers may reallow, a
discount from the concession not in excess of
US$ per common share to certain
brokers and dealers. After the offering, the offering price,
concession and reallowance to dealers may be reduced by the
representative. No such reduction will change the amount of
proceeds to be received by us as set forth on the cover page of
this prospectus. The offering price has been determined by
negotiation between us and the underwriters.
We offer no assurances that the offering price will correspond
to the price at which the common shares will trade in the public
market subsequent to the offering or that an active trading
market for the common shares will develop and continue after the
offering.
For purposes of the offering in Canada, if all of the common
shares have not been sold after the Canadian underwriters have
made a reasonable effort to sell the common shares at the
offering price disclosed in this prospectus, the Canadian
underwriters may from time to time decrease or change the
offering price and the other selling terms provided that the
price for the common shares shall not exceed the offering price
and further provided that the compensation that is realized by
the Canadian underwriters will be decreased by the amount that
the aggregate price paid by the purchasers for the common shares
is less than the gross proceeds paid by the Canadian
underwriters to us.
The following table shows the offering price, the underwriting
discounts and commissions that we are to pay the underwriters
and the proceeds, before expenses, to us in connection with this
offering. Such amounts are shown assuming both no exercise and
full exercise of the underwriters option to purchase
additional shares.
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PER SHARE
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TOTAL
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WITHOUT
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WITH
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WITHOUT
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WITH
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OPTION TO
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OPTION TO
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OPTION TO
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OPTION TO
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PURCHASE
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PURCHASE
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PURCHASE
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PURCHASE
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ADDITIONAL
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ADDITIONAL
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ADDITIONAL
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ADDITIONAL
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SHARES
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SHARES
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SHARES
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SHARES
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Public offering price
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US$
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US$
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US$
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US$
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Underwriting discounts and commissions paid by us
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US$
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US$
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US$
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US$
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Proceeds to us, before expenses
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US$
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US$
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US$
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US$
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We estimate expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions
referred to above, will be approximately
$ .
Determination of
Offering Price
Prior to the offering, there has not been a public market for
our common shares in the United States. However, our common
shares are listed on the TSX. The offering price for our common
shares will be determined by negotiations between us and the
underwriters. Among the factors to be considered in these
negotiations will be prevailing market conditions, the current
trading price of our common shares on the TSX, our financial
information, market valuations of other companies that we and
the underwriters believe to be comparable to us, estimates of
our business potential, the present state of our development and
other factors deemed relevant.
Listing
Our common shares are listed on the TSX under the trading symbol
TH. We have applied to have our common shares
approved for listing on Nasdaq under the trading symbol
THER and to have our common shares offered hereby
listed on the TSX.
Option to
Purchase Additional Shares
We have granted to the underwriters an option, exercisable for
30 days from the date of the underwriting agreement, to
purchase up to an aggregate of 1,650,000 additional common
shares at the public offering price set forth on the cover page
of this prospectus, less underwriting discounts and commissions.
If the underwriters exercise this option, each underwriter will
be obligated, subject to specified conditions, to purchase a
number of additional shares
83
proportionate to that underwriters initial purchase
commitment as indicated in the table above. This option may be
exercised only if the underwriters sell more shares than the
total number set forth on the cover page of the prospectus. If
purchased, the additional shares will be sold by the
underwriters on the same terms as those on which the other
shares are sold. We will pay the expenses associated with the
exercise of this option.
No Sales of
Similar Securities
We, our officers and directors have agreed, subject to specified
exceptions, not to directly or indirectly:
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sell, offer, contract or grant any option to sell (including any
short sale), pledge, transfer, establish an open put
equivalent position within the meaning of
Rule 16a-l(h)
under the Securities Exchange Act of 1934, as amended; or
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otherwise dispose of any common shares, options or warrants to
acquire common shares, or securities exchangeable or exercisable
for or convertible into common shares currently or hereafter
owned either of record or beneficially; or
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publicly announce an intention to do any of the foregoing for a
period of 90 days after the date of this prospectus without
the prior written consent of Jefferies & Company, Inc.
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This restriction terminates after the close of trading of the
common shares on and including the 90th day after the date
of the underwriting agreement. However, subject to certain
exceptions, in the event that either:
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during the last 17 days of the
90-day
restricted period, we issue an earnings release or material news
or a material event relating to us occurs, or
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prior to the expiration of the
90-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
90-day
restricted period,
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then in either case the expiration of the
90-day
restricted period will be extended until the expiration of the
18-day
period beginning on the date of the issuance of an earnings
release or the occurrence of the material news or event, as
applicable, unless Jefferies & Company, Inc. waives,
in writing, such an extension.
Jefferies & Company, Inc. may, in its sole discretion
and at any time or from time to time before the termination of
the 90-day
period, without public notice, release all or any portion of the
securities subject to
lock-up
agreements. There are no existing agreements between the
underwriters and any of our officers, directors or shareholders
who will execute a
lock-up
agreement, providing consent to the sale of shares prior to the
expiration of the
lock-up
period.
Stabilization
In connection with the sale of our common shares in the United
States, the Underwriters may sell more common shares than they
are required to purchase in this offering or effect transactions
which stabilize or maintain the market price of the common
shares at levels other than those which otherwise might prevail
on the open market. The underwriters have advised us that,
pursuant to Regulation M under the Securities Exchange Act
of 1934, as amended, certain persons participating in the
offering may engage in transactions, including over-allotment,
stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the common shares
at a level above that which might otherwise prevail in the open
market. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position.
Covered short sales are sales made in an
amount not greater than the underwriters option to
purchase additional common shares in this offering. The
underwriters may close out any covered short position by either
exercising their option to purchase additional common shares or
purchasing common shares in the open market. In determining the
source of shares to close out the covered short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase shares through the option
to purchase additional shares.
Naked short sales are sales in excess of the
option to purchase additional common shares. The underwriters
must close out any naked short position by purchasing shares in
the open market. A naked short position is more likely to
84
be created if the underwriters are concerned that there may be
downward pressure on the price of the common shares in the open
market after pricing that could adversely affect investors who
purchase in this offering.
A stabilizing bid is a bid for the purchase of common shares on
behalf of the underwriters for the purpose of fixing or
maintaining the price of the common shares. A syndicate covering
transaction is the bid for or the purchase of common shares on
behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with the offering. A penalty
bid is an arrangement permitting the underwriters to reclaim the
selling concession otherwise accruing to a syndicate member in
connection with the offering if the common shares originally
sold by such syndicate member are purchased in a syndicate
covering transaction and therefore have not been effectively
placed by such syndicate member.
In accordance with a rule of the Ontario Securities Commission
and the Universal Market Integrity Rules for Canadian
Marketplaces administered by the Investment Industry Regulatory
Organization of Canada, the underwriters may not, at any time
during the period of distribution, bid for or purchase common
shares. This restriction is, however, subject to exceptions
where the bid or purchase is not made for the purpose of
creating actual or apparent active trading in, or raising the
price of, the common shares. These exceptions include a bid or
purchase permitted under the Universal Market Integrity Rules
for Canadian Marketplaces relating to market stabilization and
passive market making activities and a bid or purchase made for
and on behalf of a customer where the order was not solicited
during the period of distribution.
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
our common shares. The underwriters are not obligated to engage
in these activities and, if commenced, any of the activities may
be discontinued at any time.
Electronic
Distribution
A prospectus in electronic format may be made available by
e-mail or on
the web sites or through online services maintained by one or
more of the underwriters or their affiliates. In those cases,
prospective investors may view offering terms online and may be
allowed to place orders online. The underwriters may agree with
us to allocate a specific number of common shares for sale to
online brokerage account holders. Any such allocation for online
distributions will be made by the underwriters on the same basis
as other allocations. Other than the prospectus in electronic
format, the information on the underwriters web sites and
any information contained in any other web site maintained by
any of the underwriters is not part of this prospectus, has not
been approved
and/or
endorsed by us or the underwriters and should not be relied upon
by investors.
Affiliations
The underwriters and certain of their respective affiliates are
full service financial institutions engaged in various
activities, which may include securities trading, commercial and
investment banking, financial advisory, investment management,
investment research, principal investment, hedging, financing
and brokerage activities. The underwriters and certain of their
respective affiliates have, from time to time, performed, and
may in the future perform, various financial advisory and
investment banking services for us, for which they received or
will receive customary fees and expenses.
National Bank Financial Inc. is a subsidiary of a lender that
has made a $1,800,000 revolving credit facility available to us.
Accordingly, under applicable securities laws in Canada, we may
be considered a connected issuer of this
underwriter. As at November 30, 2010, we did not have any
borrowings outstanding under this credit facility and we were in
full compliance with all debt covenants it contains. The
revolving credit facility will remain unsecured provided we
continue to hold investments in an account with this underwriter
equivalent to 150% of the amounts drawn under the facility. The
terms, structure and pricing of this offering were determined
solely by arms-length negotiations between us and
Jefferies & Company, Inc., Stifel,
Nicolaus & Company, Inc., RBC Dominion Securities Inc.
and BMO Nesbitt Burns Inc. and this underwriter will not receive
any benefit in connection with this offering other than as
described in this prospectus.
In the ordinary course of their various business activities, the
underwriters and certain of their affiliates may make or hold a
broad array of investments and actively trade debt and equity
securities (or related derivative securities)
85
and financial instruments (including bank loans) for their own
account and for the accounts of their customers, and such
investment and securities activities may involve securities
and/or
instruments of the issuer.
The underwriters and certain of their respective affiliates may
also make investment recommendations
and/or
publish or express independent research views in respect of such
securities or instruments and may at any time hold, or recommend
to clients that they acquire, long
and/or short
positions in such securities and instruments.
NASDAQ QUORUM
REQUIREMENT
Nasdaq Marketplace Rule 5615(a)(3) permits a foreign
private issuer to follow its home country practice in lieu of
certain of the requirements of the Rule 5600 Series. A
foreign private issuer that follows a home country practice in
lieu of one or more provisions of the Rule 5600 Series
shall disclose in its registration statement related to its
initial public offering or first U.S. listing on Nasdaq, or
on its website, each requirement of the Rule 5600 Series
that it does not follow and describe the home country practice
followed by the issuer in lieu of those requirements.
We do not follow Rule 5620(c), but instead follow our home
country practice. The Nasdaq minimum quorum requirement under
Rule 5620(c) for a meeting of shareholders is 33.33% of the
outstanding common shares. In addition, Rule 5620(c)
requires that an issuer listed on Nasdaq state its quorum
requirement in its bylaws. On February 8, 2006, as
permitted by Part IA of the Companies Act (Québec),
our directors approved a by-law amendment, which amendment was
ratified by our shareholders on March 30, 2006, providing
that one or more persons present in person or duly represented
and holding not less than 10% of our common shares shall
constitute a quorum at a meeting of our shareholders. The
foregoing is consistent with the laws, customs, and practices in
Canada.
LEGAL
MATTERS
Certain legal matters relating to this offering are being passed
upon on our behalf by Fasken Martineau DuMoulin LLP,
Montréal, Québec, with respect to Canadian legal
matters and Goodwin Procter LLP, Boston, Massachusetts, with
respect to U.S. legal matters. Certain legal matters
relating to this offering are being passed upon on behalf of the
underwriters by Osler, Hoskin & Harcourt LLP,
Montréal, Québec and New York, New York, with respect
to Canadian and U.S. legal matters.
As of February 18, 2011, the partners and associates of
these firms beneficially owned, directly or indirectly, less
than 1% of our issued and outstanding common shares.
INTEREST OF
EXPERTS
Our consolidated financial statements for the years ended
November 30, 2010 and 2009 appearing and incorporated by
reference in this prospectus and registration statement have
been audited by KPMG LLP, independent auditors, as set forth in
their report appearing elsewhere in this prospectus and
incorporated by reference in this prospectus and registration
statement, and are included and incorporated by reference in
reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
TRANSFER AGENT
AND REGISTRAR
The transfer agent and registrar for the common shares in Canada
is Computershare Trust Company of Canada at its principal
offices in Montreal and Toronto and in the United States is
Computershare Trust Company, Inc. at its principal office
in Golden, Colorado.
86
DOCUMENTS
INCORPORATED BY REFERENCE
Information has been incorporated by reference in this
prospectus from documents filed with securities commissions or
similar authorities in Canada. Copies of documents incorporated
by reference in this prospectus and not delivered with this
prospectus may be obtained upon request without charge from our
Secretary at 2310 Alfred-Nobel Blvd., Montreal, Québec, H4S
2B4, telephone:
(514) 336-7800,
or by accessing the disclosure documents available through the
Internet on SEDAR, which can be accessed at www.sedar.com and on
the SECs website at www.sec.gov. The following documents,
filed with the various securities commissions or similar
authorities in each of the provinces of Canada, are specifically
incorporated by reference and form an integral part of this
prospectus:
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our annual information form dated February 22, 2011 for the
fiscal year ended November 30, 2010;
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our consolidated statements of financial position as at
November 30, 2010 and 2009 and December 1, 2008, and
the consolidated statements of comprehensive income, changes in
equity and cash flows for the years ended November 30, 2010
and 2009, together with the notes thereto and the auditors
report thereon;
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our managements discussion and analysis of results and
operations and financial condition for the fiscal year ended
November 30, 2010;
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our management proxy circular dated February 23, 2010 in
connection with our annual and special meeting of shareholders
held on March 25, 2010;
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our material change report dated December 16, 2010
announcing the execution of a distribution and licensing
agreement with Sanofi for the commercialization rights to
EGRIFTAtm
(tesamorelin for injection) in Latin America, Africa and
the Middle East for the reduction of excess abdominal fat in
HIV-infected patients with lipodystrophy;
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our material change report dated February 10, 2011
announcing the execution of a distribution and licensing
agreement with Ferrer for the commercialization rights to
EGRIFTAtm
(tesamorelin for injection) in Europe, Russia, South
Korea, Taiwan, Thailand and certain central Asian countries for
the reduction of excess abdominal fat in HIV-infected patients
with lipodystrophy; and
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our material change report dated February 22, 2011 announcing a
new clinical program for muscle wasting in COPD using
tesamorelin.
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Any documents of the type referred to in the preceding
paragraph and any material change reports (excluding
confidential material change reports) we filed with a securities
commission or any similar authority in Canada or the SEC after
the date of this prospectus and prior to the termination of the
offering shall be deemed to be incorporated by reference into
this prospectus.
Any statement contained in a document incorporated or deemed
to be incorporated by reference in this prospectus shall be
deemed to be modified or superseded for the purposes of this
prospectus to the extent that a statement contained in this
prospectus or in any subsequently filed document which also is
or is deemed to be incorporated by reference in this prospectus
modifies or supersedes that statement. The modifying or
superseding statement need not state that it has modified or
superseded a prior statement or include any other information
set forth in the document that it modifies or supersedes. The
making of a modifying or superseding statement shall not be
deemed an admission for any purposes that the modified or
superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated
or that is necessary to make a statement not misleading in light
of the circumstances in which it was made. Any statement so
modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this
prospectus.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC under the U.S. Securities Act of
1933, as amended, a registration statement on
Form F-10
(which, together with all amendments and supplements thereto, we
refer to as the Registration Statement) with respect to our
common shares offered hereby. This prospectus, which forms a
part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules
and regulations of the SEC. For further information with respect
to us, and the common shares offered hereby, reference is made
to the Registration Statement and to the
87
schedules and exhibits filed therewith. Statements contained or
incorporated by reference in this prospectus as to the contents
of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of the document filed as
an exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference. The Registration
Statement can be found on the SECs website, www.sec.gov.
Subsequent to the effectiveness of the Registration Statement,
we will be subject to the information requirements of the
Exchange Act, and in accordance therewith will file periodic
reports and other information with the SEC. Under the MJDS, such
reports and other information may be prepared in accordance with
the disclosure requirements of Canada, which requirements are
different from those of the United States. As a foreign private
issuer, we are exempt from the rules under the Exchange Act
prescribing the furnishing and content of proxy statements, and
our officers, directors and principal shareholders are exempt
from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. Under the
Exchange Act, we are not required to publish financial
statements as frequently or as promptly as U.S. public
companies. Any information filed with the SEC may be reviewed,
printed and downloaded from the SECs website (www.sec.gov)
and inspected and copied at prescribed rates at the public
reference room of the SEC at 100 F Street, N.E., Washington,
D.C. 20549. Information on the operation of the public reference
facilities may be obtained by calling the SEC at
1-800-SEC-0330.
ENFORCEABILITY OF
CIVIL LIABILITIES
We are incorporated under the laws of the Province of
Québec, Canada. Most of our directors and officers, as well
as some of the experts named in this prospectus, are residents
of Canada, and a substantial portion of their assets and our
assets are located outside of the United States. As a result, it
may be difficult for U.S. investors to effect service of
process within the United States upon us or those directors,
officers and experts who are not residents of the United States
or to enforce against us or them judgments obtained in the
courts of the United States based upon the civil liability
provisions of the federal securities laws or other laws of the
United States. There is doubt as to the enforceability in
Canada, or elsewhere, against us or against any of our
directors, officers or experts who are not residents of the
United States, in original actions or in actions for enforcement
of judgments of United States courts, of liabilities based
solely upon the civil liability provisions of the
U.S. federal securities laws. Therefore, it may not be
possible for U.S. investors to enforce those actions
against us, our directors and officers or the experts named in
this prospectus.
We have filed with the SEC, concurrently with the registration
statement on
Form F-10
relating to this offering, an appointment of agent for service
of process on
Form F-X.
Under the
Form F-X,
we appointed CT Corporation System at its address at 111
8th Avenue New York, New York 10011 as our agent for
service of process in the United States in connection with
any investigation or administrative proceeding conducted by the
SEC and any civil suit or action brought against or involving us
in a United States court arising out of or related to or
concerning this offering.
88
AUDITORS
REPORT TO THE SHAREHOLDERS
We have audited the consolidated statements of financial
position of Theratechnologies Inc. as at November 30, 2010
and 2009 and December 1, 2008, and the consolidated
statements of comprehensive income, statements of changes in
equity and statements of cash flows for the years ended
November 30, 2010 and 2009. These financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as at November 30, 2010 and 2009 and
December 1, 2008, and its financial performance and its
cash flows for the years ended November 30, 2010 and 2009
in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
Chartered Accountants
Montreal, Canada
February 8, 2011
F-2
THERATECHNOLOGIES
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDED
NOVEMBER 30, 2010 AND 2009 AND AS AT DECEMBER 1,
2008
|
|
|
|
|
Financial Statements
|
|
|
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
F-3
THERATECHNOLOGIES
INC.
AS AT
NOVEMBER 30, 2010 AND 2009 AND DECEMBER 1,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
DECEMBER 1,
|
|
|
|
NOTE
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
(in thousands of Canadian dollars)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
26,649
|
|
|
|
1,519
|
|
|
|
133
|
|
Bonds
|
|
8
|
|
|
1,860
|
|
|
|
10,036
|
|
|
|
10,955
|
|
Trade and other receivables
|
|
9
|
|
|
161
|
|
|
|
375
|
|
|
|
610
|
|
Tax credits and grants receivable
|
|
10
|
|
|
332
|
|
|
|
1,333
|
|
|
|
1,451
|
|
Inventories
|
|
11
|
|
|
4,317
|
|
|
|
2,225
|
|
|
|
|
|
Prepaid expenses
|
|
|
|
|
1,231
|
|
|
|
630
|
|
|
|
739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
34,550
|
|
|
|
16,118
|
|
|
|
13,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
8
|
|
|
36,041
|
|
|
|
51,807
|
|
|
|
35,249
|
|
Property and equipment
|
|
12
|
|
|
1,060
|
|
|
|
1,229
|
|
|
|
1,299
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
2,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
|
|
37,101
|
|
|
|
53,036
|
|
|
|
39,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
71,651
|
|
|
|
69,154
|
|
|
|
53,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
13
|
|
|
4,977
|
|
|
|
5,568
|
|
|
|
6,865
|
|
Current portion of deferred revenue
|
|
4
|
|
|
6,847
|
|
|
|
6,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
11,824
|
|
|
|
12,415
|
|
|
|
6,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
14
|
|
|
325
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
4
|
|
|
6,846
|
|
|
|
13,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
7,171
|
|
|
|
13,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
18,995
|
|
|
|
26,106
|
|
|
|
6,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
15
|
|
|
279,398
|
|
|
|
279,169
|
|
|
|
269,219
|
|
Contributed surplus
|
|
|
|
|
7,808
|
|
|
|
6,757
|
|
|
|
5,760
|
|
Deficit
|
|
|
|
|
(235,116
|
)
|
|
|
(244,160
|
)
|
|
|
(229,004
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
566
|
|
|
|
1,282
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
|
52,656
|
|
|
|
43,048
|
|
|
|
46,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent liability
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent events
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
|
|
71,651
|
|
|
|
69,154
|
|
|
|
53,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On behalf of the Board,
|
|
|
|
|
(signed) Jean-Denis Talon
|
Director
|
|
Director
|
See accompanying notes to the consolidated financial statements.
F-4
THERATECHNOLOGIES
INC.
YEARS ENDED
NOVEMBER 30, 2010 AND 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
NOTE
|
|
2010
|
|
|
2009
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
(in thousands of Canadian dollars, except per share
amounts)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Research services:
|
|
|
|
|
|
|
|
|
|
|
Milestone payments
|
|
4
|
|
|
25,000
|
|
|
|
10,884
|
|
Upfront payments and initial technology access fees
|
|
4
|
|
|
6,846
|
|
|
|
6,560
|
|
Royalties and license fees
|
|
|
|
|
22
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
31,868
|
|
|
|
17,468
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
469
|
|
|
|
|
|
Research and development expenses, net of tax credits of $934
(2009 $1,795)
|
|
10
|
|
|
14,064
|
|
|
|
20,810
|
|
Selling and market development expenses
|
|
6
|
|
|
2,670
|
|
|
|
6,862
|
|
General and administrative expenses
|
|
|
|
|
8,002
|
|
|
|
6,543
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
25,205
|
|
|
|
34,215
|
|
|
|
|
|
|
|
|
|
|
|
|
Results from operating activities
|
|
|
|
|
6,663
|
|
|
|
(16,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
7
|
|
|
1,888
|
|
|
|
2,252
|
|
Finance costs
|
|
7
|
|
|
493
|
|
|
|
(661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total net financial income
|
|
|
|
|
2,381
|
|
|
|
1,591
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) before income taxes
|
|
|
|
|
9,044
|
|
|
|
(15,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
16
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
|
|
|
8,930
|
|
|
|
(15,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value
available-for-sale
financial assets, net of tax
|
|
|
|
|
(390
|
)
|
|
|
1,039
|
|
Net change in fair value
available-for-sale
financial assets transferred to net profit (loss), net of tax
|
|
|
|
|
(326
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(716
|
)
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) for the year
|
|
|
|
|
8,214
|
|
|
|
(14,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share
|
|
15
|
|
|
0.15
|
|
|
|
(0.25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-5
THERATECHNOLOGIES
INC.
YEARS ENDED
NOVEMBER 30, 2010 AND 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNREALIZED GAINS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OR LOSSES ON
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVAILABLE-FOR-SALE
|
|
|
|
|
|
|
|
|
|
|
|
SHARE CAPITAL
|
|
|
CONTRIBUTED
|
|
|
FINANCIAL
|
|
|
|
|
|
|
|
|
|
NOTE
|
|
NUMBER
|
|
|
DOLLARS
|
|
|
SURPLUS
|
|
|
ASSETS (i)
|
|
|
DEFICIT
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
(in thousands of Canadian dollars)
|
|
|
Balance as at December 1, 2008
|
|
|
|
|
58,215,090
|
|
|
|
269,219
|
|
|
|
5,760
|
|
|
|
372
|
|
|
|
(229,004
|
)
|
|
|
46,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) for the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,156
|
)
|
|
|
(15,156
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of
available-for-sale
financial assets, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,039
|
|
|
|
|
|
|
|
1,039
|
|
Net change in fair value of
available-for-sale
financial assets transferred to net profit (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
910
|
|
|
|
(15,156
|
)
|
|
|
(14,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners, recorded directly in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of common shares
|
|
15(i)
|
|
|
2,214,303
|
|
|
|
9,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,950
|
|
Share-based compensation for stock option plan
|
|
15(iv)
|
|
|
|
|
|
|
|
|
|
|
997
|
|
|
|
|
|
|
|
|
|
|
|
997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions by owners
|
|
|
|
|
2,214,303
|
|
|
|
9,950
|
|
|
|
997
|
|
|
|
|
|
|
|
|
|
|
|
10,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at November 30, 2009
|
|
|
|
|
60,429,393
|
|
|
|
279,169
|
|
|
|
6,757
|
|
|
|
1,282
|
|
|
|
(244,160
|
)
|
|
|
43,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) for the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,930
|
|
|
|
8,930
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of
available-for-sale
financial assets, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(390
|
)
|
|
|
|
|
|
|
(390
|
)
|
Net change in fair value of
available-for-sale
financial assets transferred to net profit (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(326
|
)
|
|
|
|
|
|
|
(326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(716
|
)
|
|
|
8,930
|
|
|
|
8,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners, recorded directly in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of common shares
|
|
15(i)
|
|
|
2,880
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Income tax related to share issue costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
114
|
|
Share-based compensation plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation for stock option plan
|
|
15(iv)
|
|
|
|
|
|
|
|
|
|
|
1,133
|
|
|
|
|
|
|
|
|
|
|
|
1,133
|
|
Exercise of stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary consideration
|
|
15(iv)
|
|
|
80,491
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Attributed value
|
|
15(iv)
|
|
|
|
|
|
|
82
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions by owners
|
|
|
|
|
83,371
|
|
|
|
229
|
|
|
|
1,051
|
|
|
|
|
|
|
|
114
|
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at November 30, 2010
|
|
|
|
|
60,512,764
|
|
|
|
279,398
|
|
|
|
7,808
|
|
|
|
566
|
|
|
|
(235,116
|
)
|
|
|
52,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Accumulated other comprehensive
income.
|
See accompanying notes to the consolidated financial statements.
F-6
THERATECHNOLOGIES
INC.
YEARS ENDED
NOVEMBER 30, 2010 AND 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
NOTE
|
|
2010
|
|
|
2009
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
(in thousands of Canadian dollars)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
|
|
|
8,930
|
|
|
|
(15,156
|
)
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
12
|
|
|
466
|
|
|
|
612
|
|
Share-based compensation
|
|
|
|
|
1,133
|
|
|
|
997
|
|
Income tax expense
|
|
|
|
|
114
|
|
|
|
|
|
Write-down of inventories
|
|
11
|
|
|
192
|
|
|
|
|
|
Lease inducements and amortization
|
|
17
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities before changes in operating assets and
liabilities
|
|
|
|
|
11,160
|
|
|
|
(13,547
|
)
|
Change in accrued interest income on bonds
|
|
|
|
|
728
|
|
|
|
(923
|
)
|
Change in trade and other receivables
|
|
|
|
|
214
|
|
|
|
235
|
|
Change in tax credits and grants receivable
|
|
|
|
|
1,001
|
|
|
|
118
|
|
Change in inventories
|
|
|
|
|
(2,284
|
)
|
|
|
(2,225
|
)
|
Change in prepaid expenses
|
|
|
|
|
(601
|
)
|
|
|
109
|
|
Change in other assets
|
|
|
|
|
|
|
|
|
2,776
|
|
Change in accounts payable and accrued liabilities
|
|
|
|
|
(473
|
)
|
|
|
(1,424
|
)
|
Change in deferred revenue
|
|
|
|
|
(6,845
|
)
|
|
|
20,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,260
|
)
|
|
|
19,204
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
2,900
|
|
|
|
5,657
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issue of share capital
|
|
|
|
|
15
|
|
|
|
9,950
|
|
Proceeds from exercise of stock options
|
|
15
|
|
|
132
|
|
|
|
|
|
Share issue costs
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
147
|
|
|
|
9,942
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
12
|
|
|
(415
|
)
|
|
|
(407
|
)
|
Proceeds from sale of bonds
|
|
|
|
|
22,498
|
|
|
|
15,305
|
|
Acquisition of bonds
|
|
|
|
|
|
|
|
|
(29,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from (used in) investing activities
|
|
|
|
|
22,083
|
|
|
|
(14,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
|
|
25,130
|
|
|
|
1,386
|
|
Cash as at December 1
|
|
|
|
|
1,519
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash as at November 30
|
|
|
|
|
26,649
|
|
|
|
1,519
|
|
|
|
|
|
|
|
|
|
|
|
|
See note 19 for supplemental cash flow information.
See accompanying notes to the consolidated financial statements.
F-7
Theratechnologies Inc. is a specialty pharmaceutical company
that discovers and develops innovative therapeutic peptide
products with an emphasis on growth hormone releasing factor
peptides. Theratechnologies Inc. is leveraging its expertise in
the field of metabolism to discover and develop products in
specialty markets. Its commercialization strategy is to retain
all or a significant portion of the commercial rights to its
products. Its first product,
EGRIFTAtm
(tesamorelin for injection), was approved by the United States
Food and Drug Administration (FDA) in November 2010.
To date,
EGRIFTAtm
is the only approved therapy for the reduction of excess
abdominal fat in HIV-infected patients with lipodystrophy.
The consolidated financial statements include the accounts of
Theratechnologies Inc. and its wholly-owned subsidiaries
(together referred to as the Company and
individually as the subsidiaries of the Company).
Theratechnologies Inc. is incorporated under Part 1A of the
Québec Companies Act and is domiciled in Quebec,
Canada. The Company is located at 2310 boul. Alfred-Nobel,
Montreal, Quebec, H4S 2B4.
|
|
(a)
|
Statement of
Compliance:
|
The consolidated financial statements of the Company have been
prepared in accordance with IFRSs as issued by the International
Accounting Standards Board (IASB). These are the
Companys first consolidated financial statements prepared
in accordance with International Financial Reporting Standards
(IFRSs). The Company has applied IFRS 1,
First-time Adoption of International Financial Reporting
Standards, using December 1, 2008 as the date of
transition to IFRSs.
An explanation of how the transition to IFRSs has affected the
reported financial position, financial performance and cash
flows of the Company is provided in note 27.
The consolidated financial statements were authorized for issue
by the Board of Directors on February 8, 2011.
|
|
(b)
|
Basis of
Measurement:
|
The Companys consolidated financial statements have been
prepared on a going concern and historical cost basis, except
for
available-for-sale
financial assets which are measured at fair value.
The methods used to measure fair value are discussed further in
note 22.
|
|
(c)
|
Functional and
Presentation Currency:
|
These consolidated financial statements are presented in
Canadian dollars, which is the Companys functional
currency. All financial information presented in Canadian
dollars has been rounded to the nearest thousand.
|
|
(d)
|
Use of
Estimates and Judgements:
|
The preparation of the Companys consolidated financial
statements in conformity with IFRSs requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period.
Information about critical judgements in applying accounting
policies and assumption and estimation uncertainties that have
the most significant effect on the amounts recognized in the
consolidated financial statements is included in the following
notes:
|
|
|
|
n
|
Note 4 Revenue and deferred revenue;
|
|
|
n
|
Note 15 (iv) Stock option plan;
|
F-8
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
|
|
|
|
n
|
Note 16 Income taxes;
|
|
|
n
|
Note 18 Contingent liability.
|
Other areas of judgement and uncertainty relate to the
estimation of accruals for clinical trial expenses, the
recoverability of inventories, the measurement of the amount and
assessment of the recoverability of tax credits and grants
receivable and capitalization of development expenditures.
Reported amounts and note disclosure reflect the overall
economic conditions that are most likely to occur and
anticipated measures management intends to take. Actual results
could differ from those estimates.
The above estimates and assumptions are reviewed regularly.
Revisions to accounting estimates are recognized in the period
in which the estimates are revised and in any future periods
affected.
|
|
3.
|
Significant
Accounting Policies:
|
The accounting policies set out below have been applied
consistently to all periods presented in these consolidated
financial statements and in preparing the opening IFRS statement
of financial position at December 1, 2008, the date of
transition to IFRSs.
The accounting policies have been applied consistently by the
subsidiaries of the Company.
|
|
(a)
|
Basis of
Consolidation:
|
The financial statements of subsidiaries are included in the
consolidated financial statements from the date on which control
commences until the date on which control ceases. Subsidiaries
are entities controlled by the Company. Control is present where
the Company has the power to govern the financial and operating
policies of the entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that
are exercisable currently are taken into consideration. The
accounting policies of subsidiaries are changed when necessary
to align them with the policies adopted by the Company.
Reciprocal balances and transactions, revenues and expenses
resulting from transactions between subsidiaries and with the
Company are eliminated in preparing the consolidated financial
statements.
Transactions in foreign currencies are translated to the
respective functional currencies of the subsidiaries of the
Company at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign
currencies at the reporting date are retranslated to the
functional currency at the exchange rate at that date. The
foreign currency gain or loss on monetary items is the
difference between amortized cost in the functional currency at
the beginning of the period, adjusted for effective interest and
payments during the period, and the amortized cost in foreign
currency translated at the exchange rate at the end of the
reporting period.
Foreign currency differences arising on translation are
recognized in net profit (loss), except for differences arising
on the translation of
available-for-sale
equity instruments, which are recognized in other comprehensive
income. Non-monetary assets and liabilities denominated in
foreign currencies that are measured at fair value are
translated to the functional currency at the exchange rate at
the date on which the fair value was determined. Non-monetary
items that are measured at historical cost in a foreign currency
are translated using the exchange rate at the date of the
transaction.
Collaboration agreements that include multiple deliverables are
considered to be multi-element arrangements. Under this type of
arrangement, the identification of separate units of accounting
is required and revenue is allocated among the separate units
based on their relative fair values.
F-9
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Payments received under the collaboration agreement may include
upfront payments, milestone payments, research services,
royalties and license fees. Revenues for each unit of accounting
are recorded as described below:
Revenues from the sale of goods are recognized when the Company
has transferred to the buyer the significant risks and rewards
of ownership of the goods, there is no continuing management
involvement with the goods, and the amount of revenue can be
measured reliably.
|
|
(ii)
|
Royalties and
License Fees:
|
Royalties and license fees are recognized when conditions and
events under the license agreement have occurred and
collectibility is reasonably assured.
Revenues from research contracts are recognized when services to
be provided are rendered and all conditions under the terms of
the underlying agreement are met.
|
|
|
|
(a)
|
Upfront Payments and Initial Technology Access Fees:
|
Upfront payments and initial technology access fees are deferred
and recognized as revenue on a systematic basis over the period
during which the related products or services are delivered and
all obligations are performed.
Revenues subject to the achievement of milestones are recognized
only when the specified events have occurred and collectibility
is reasonably assured.
Cost of sales represents the cost of goods sold and includes the
cost of raw materials, supplies, direct overhead charges,
unallocated indirect costs related to production as well as
write-down of inventories. Other direct costs, such as
manufacturing
start-up
costs between validation and the achievement of normal
production, are expensed as incurred.
Salaries
and Short-Term Employee Benefits:
Salaries and short-term employee benefit obligations are
measured on an undiscounted basis and are expensed as the
related service is provided. A liability is recognized for the
amount expected to be paid under short-term profit-sharing or
cash bonus plans if the Company has a legal or constructive
obligation to pay an amount as a result of past services
rendered by an employee and the obligation can be estimated
reliably.
Post-Employment
Benefits:
Post-employment benefits include a defined contribution plan
under which an entity pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay
further amounts. Obligations for contributions to defined
contribution plans are recognized as an employee benefit expense
when due. Prepaid contributions are recognized as an asset to
the extent that a cash refund or a reduction in future payments
is available. The Companys defined contribution plan
comprises the registered retirement savings plan, the Quebec
Pension Plan and unemployment insurance.
Termination
Benefits:
Termination benefits are recognized as an expense when the
Company is committed demonstrably, without realistic possibility
of withdrawal, to a formal detailed plan to either terminate
employment before the normal retirement date, or to provide
termination benefits as a result of an offer made to encourage
voluntary redundancy.
F-10
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
|
|
(f)
|
Finance Income
and Finance Costs:
|
Finance income comprises interest income on
available-for-sale
financial assets and gains (losses) on the disposal of
available-for-sale
financial assets. Interest income is recognized as it accrues in
profit (loss), using the effective interest method.
Finance costs are comprised of bank charges, impairment losses
on financial assets recognized in profit (loss) and of foreign
currency gains and losses which are reported on a net basis.
Inventories are presented at the lower of cost, determined using
the first-in
first-out method, or net realizable value. Inventory costs
include the purchase price and other costs directly related to
the acquisition of materials, and other costs incurred in
bringing the inventories to their present location and
condition. Inventory costs also include the costs directly
related to the conversion of materials to finished goods, such
as direct labour, and a systematic allocation of fixed and
variable production overhead, including manufacturing
depreciation expense. The allocation of fixed production
overheads to the cost of inventories is based on the normal
capacity of the production facilities. Normal capacity is the
average production expected to be achieved over a number of
periods under normal circumstances.
Net realizable value is the estimated selling price in the
Companys ordinary course of business, less the estimated
costs of completion and selling expenses.
|
|
(h)
|
Property and
Equipment:
|
Recognition
and Measurement:
Items of property and equipment are recognized at cost less
accumulated depreciation and accumulated impairment losses. Cost
includes expenditure that is directly attributable to the
acquisition of the asset and the costs of dismantling and
removing the item and restoring the site on which it is located,
if any.
When parts of an item of property and equipment have different
useful lives, they are accounted for as separate items (major
components) of property and equipment.
Gains and losses on disposal of an item of property and
equipment are determined by comparing the proceeds from disposal
with the carrying amount of property and equipment, and are
recognized in net profit (loss).
Subsequent
Costs:
The cost of replacing a part of an item of property and
equipment is recognized in the carrying amount of the item if it
is probable that the future economic benefits embodied within
the part will flow to the Company, and its cost can be measured
reliably. The carrying amount of the replaced part is
derecognized. The costs of the
day-to-day
servicing of property and equipment are recognized in profit
(loss) as incurred.
Depreciation:
The estimated useful lives and the methods of depreciation for
the current and comparative periods are as follows:
|
|
|
|
|
ASSET
|
|
METHOD
|
|
RATE/PERIOD
|
|
Computer equipment
|
|
Declining balance
|
|
50%
|
Laboratory equipment
|
|
Declining balance
|
|
20%
|
|
|
and straight-line
|
|
5 years
|
Office furniture and equipment
|
|
Declining balance
|
|
20%
|
Leasehold improvements
|
|
Straight-line
|
|
Lower of term of lease
or economic life
|
This most closely reflects the expected pattern of consumption
of the future economic benefits embodied in the asset.
F-11
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Estimates for depreciation methods, useful lives and residual
values are reviewed at each reporting period-end and adjusted if
appropriate.
Research
and Development:
Expenditure on research activities, undertaken with the prospect
of gaining new scientific or technical knowledge and
understanding, is expensed as incurred.
Development activities involve a plan or design for the
production of new or substantially improved products and
processes. Development expenditure is capitalized only if
development costs can be measured reliably, the product or
process is technically and commercially feasible, future
economic benefits are probable, and the Company intends to and
has sufficient resources to complete development and to use or
sell the asset. These criteria are usually met when a regulatory
filing has been made in a major market and approval is
considered highly probable. The expenditure capitalized includes
the cost of materials, direct labour, and overhead costs that
are directly attributable to preparing the asset for its
intended use. Other development expenditures are expensed as
incurred. Capitalized development expenditures are measured at
cost less accumulated amortization and accumulated impairment
losses.
During the years ended November 30, 2010 and 2009 and as at
December 1, 2008, no development expenditures were
capitalized.
|
|
(j)
|
Financial
Instruments:
|
The Companys financial instruments are classified into one
of three categories: loans and receivables,
available-for-sale
financial assets and other financial liabilities. Loans and
receivables and other financial liabilities are measured at
amortized cost.
The Company has classified its bonds as
available-for-sale
financial assets. The Company has classified cash and trade and
other receivables as loans and receivables, and accounts payable
and accrued liabilities as other financial liabilities.
Available-for-sale
financial assets are non-derivative financial assets that are
designated as
available-for-sale
and that are not classified in any of the other categories.
Subsequent to initial recognition, they are measured at fair
value and changes therein, other than impairment losses and
foreign currency differences on
available-for-sale
debt instruments, are recognized in other comprehensive income
and presented within equity. When an investment is derecognized,
the cumulative gain or loss in other comprehensive income is
transferred to profit (loss).
Other assets consist of prepaid expenses for research supplies
that are not expected to be used within one year from the date
of the consolidated statement of financial position.
Research supplies are purchased in advance, in accordance with
specific regulatory requirements, to be used in connection with
the Companys clinical trials.
Operating lease payments are recognized in net profit (loss) on
a straight-line basis over the term of the lease.
Lease inducements arising from leasehold improvement allowances
and rent-free periods form an integral part of the total lease
cost and are deferred and recognized in net profit (loss) over
the term of the lease on a straight-line basis.
F-12
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Financial
Assets:
A financial asset not carried at fair value through profit or
loss is assessed at each consolidated financial statement
reporting date to determine whether there is objective evidence
that it is impaired. The Company considers that a financial
asset is impaired if objective evidence indicates that one or
more loss events had a negative effect on the estimated future
cash flows of that asset that can be estimated reliably.
An impairment test is performed, on an individual basis, for
each material financial asset. Other individually non-material
financial assets are tested as groups of financial assets with
similar risk characteristics. Impairment losses are recognized
in net profit (loss).
An impairment loss in respect of a financial asset measured at
amortized cost is calculated as the difference between its
carrying amount and the present value of the estimated future
cash flows discounted at the assets original effective
interest rate. Losses are recognized in net profit (loss) and
reflected in an allowance account against the respective
financial asset. Interest on the impaired asset continues to be
recognized through the unwinding of the discount. When a
subsequent event causes the amount of impairment loss to
decrease, the decrease in impairment loss is reversed through
net profit (loss).
Impairment losses on
available-for-sale
investment securities are recognized by transferring the
cumulative loss that has been recognized in other comprehensive
income, and presented in unrealized gains/losses on
available-for-sale
financial assets in equity, to net profit (loss). The cumulative
loss that is removed from other comprehensive income and
recognized in net profit (loss) is the difference between the
acquisition cost, net of any principal repayment and
amortization, and the current fair value, less any impairment
loss previously recognized in net profit (loss). Changes in
impairment provisions attributable to time value are reflected
as a separate component of interest income.
If, in a subsequent period, the fair value of an impaired
available-for-sale
debt security increases and the increase can be related
objectively to an event occurring after the impairment loss was
recognized in net profit (loss), then the impairment loss is
reversed, with the amount of the reversal recognized in net
profit (loss). However, any subsequent recovery in the fair
value of an impaired
available-for-sale
equity security is recognized in other comprehensive income.
Non-Financial
Assets:
The carrying amounts of the Companys non-financial assets,
other than inventories and deferred tax assets, are reviewed at
each reporting date to determine whether there is any indication
of impairment. If such an indication exists, the recoverable
amount is estimated.
The recoverable amount of an asset or a cash-generating unit is
the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value
of money and the risks specific to the asset. For the purpose of
impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from
continuing use that are largely independent of cash inflows from
other assets or groups of assets (cash-generating
unit). Impairment losses recognized in prior periods are
determined at each reporting date for any indications that the
loss has decreased or no longer exists. An impairment loss is
reversed if there has been a change in the estimates used to
determine the recoverable amount. An assets carrying
amount, increased through reversal of an impairment loss, must
not exceed the carrying amount that would have been determined,
net of depreciation or amortization, if no impairment loss had
been recognized.
F-13
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
A provision is recognized if, as a result of a past event, the
Company has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation.
Provisions are assessed by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the
liability. The unwinding of the discount on provisions is
recognized in finance costs.
Onerous
Contracts:
A provision for onerous contracts is recognized when the
expected benefits to be derived by the Company from a contract
are lower than the unavoidable cost of meeting its obligations
under the contract. The provision is measured at the present
value of the lower of the expected cost of terminating the
contract and the expected net cost of continuing with the
contract. Before a provision is established, the Company
recognizes any impairment loss on the assets associated with
that contract. There were no onerous contracts as at
November 30, 2010 and 2009 and December 1, 2008.
Site
Restoration:
Where there is a legal or constructive obligation to restore
leased premises to good condition, except for normal aging on
expiry or early termination of the lease, the resulting costs
are provisioned up to the discounted value of estimated future
costs and increase the carrying amount of the corresponding item
of property and equipment. The Company amortizes the cost of
restoring leased premises and recognizes an unwinding of
discount expense on the liability related to the term of the
lease.
Contingent
Liability:
A contingent liability is a possible obligation that arises from
past events and of which the existence will be confirmed only by
the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Company; or a
present obligation that arises from past events (and therefore
exists), but is not recognized because it is not probable that a
transfer or use of assets, provision of services or any other
transfer of economic benefits will be required to settle the
obligation, or the amount of the obligation cannot be estimated
reliably.
Income tax expense comprises current and deferred tax. Current
tax and deferred tax are recognized in net profit (loss) except
to the extent that they relate to items recognized directly in
other comprehensive income or in equity.
Current
Tax:
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment
to tax payable in respect of previous years. The Company
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred
Tax:
Deferred tax is recognized in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is measured at the tax rates that are
expected to be applied to temporary differences when they
reverse, based on the laws that have been enacted or
substantively enacted by the reporting date.
A deferred tax liability is generally recognized for all taxable
temporary differences.
A deferred tax asset is recognized for unused tax losses and
deductible temporary differences, to the extent that it is
probable that future taxable profits will be available against
which they can be utilized. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realized.
F-14
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
|
|
(p)
|
Share-Based
Compensation:
|
The Company records share-based compensation related to employee
stock options granted using the fair value based method
estimated using the Black-Scholes model. Under this method,
compensation cost is measured at fair value at the date of grant
and expensed, as employee benefits, over the period in which
employees unconditionally become entitled to the award. The
amount recognized as an expense is adjusted to reflect the
number of awards for which the related service conditions are
expected to be met, such that the amount ultimately recognized
as an expense is based on the number of awards that do meet the
related service and non-market performance conditions at the
vesting date.
Share-based payment arrangements in which the Company receives
goods or services as consideration for its own equity
instruments are accounted for as equity-settled share-based
payment transactions, regardless of how the equity instruments
are obtained by the Company.
As permitted by IFRS 1, the Company elected not to restate
options that were granted before November 7, 2002 and those
granted after November 7, 2002 that were fully vested prior
to the date of transition to IFRS.
Government grants consisting of grants and investment tax
credits, are recorded as a reduction of the related expense or
cost of the asset acquired. Government grants are recognized
when there is reasonable assurance that the Company has met the
requirements of the approved grant program and there is
reasonable assurance that the grant will be received.
Common
Shares:
Common shares are classified as equity. Incremental costs
directly attributable to the issue of common shares and share
options are recognized as a deduction from equity, net of any
tax effects.
The Company presents basic and diluted earnings per share
(EPS) data for its common shares. Basic EPS is
calculated by dividing the net profit or loss attributable to
common shareholders of the Company by the weighted average
number of common shares outstanding during the period, adjusted
for own shares held, if applicable. Diluted EPS is determined by
adjusting the profit or loss attributable to common shareholders
and the weighted average number of common shares outstanding,
adjusted for own shares held if applicable, for the effects of
all dilutive potential common shares, which consist of the stock
options granted to employees.
|
|
(t)
|
New Standards
and Interpretations not yet Applied:
|
Certain pronouncements were issued by the IASB or International
Financial Reporting Interpretation Committee that are mandatory
for annual periods beginning on or after January 1, 2010 or
later periods. Many of these updates are not applicable or are
inconsequential to the Company and have been excluded from the
discussion below. The remaining pronouncements are being
assessed to determine their impact on the Companys results
and financial position:
Annual
Improvements to IFRS:
The IASBs improvements to IFRS published in April 2009
contain fifteen amendments to twelve standards that result in
accounting changes for presentation, recognition or measurement
purposes largely for annual periods beginning on or after
January 1, 2010, with early adoption permitted. These
amendments were considered by the Company and deemed to be not
applicable to the Company other than for the amendment to IAS
17 Leases relating to leases which include both land
and buildings elements. In this case, the Company early adopted
this amendment.
The IASBs improvements to IFRS contain seven amendments
that result in accounting changes for presentation, recognition
or measurement purposes. The most significant features of the
IASBs annual
F-15
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
improvements project published in May 2010 are included under
the specific revisions to standards discussed below.
Revision
to IFRS 3, Business Combinations:
Effective for annual periods beginning on or after July 1,
2010 with earlier adoption permitted.
Clarification on the following areas:
|
|
|
|
n
|
the choice of measuring non-controlling interests at fair value
or at the proportionate share of the acquirees net assets
applies only to instruments that represent present ownership
interests and entitle their holders to a proportionate share of
the net assets in the event of liquidation. All other components
of non-controlling interest are measured at fair value unless
another measurement basis is required by IFRS.
|
|
|
n
|
application guidance relating to the accounting for share-based
payments in IFRS 3 applies to all share-based payment
transactions that are part of a business combination, including
unreplaced awards (i.e., unexpired awards over the acquiree
shares that remain outstanding rather than being replaced by the
acquirer) and voluntarily replaced share-based payment awards.
|
Amendment
to IFRS 7, Financial Instruments: Disclosures:
Effective for annual periods beginning on or after
January 1, 2011, with earlier adoption permitted.
Multiple clarifications related to the disclosure of financial
instruments and in particular in regards to transfers of
financial assets.
Amendment
to IAS 1, Presentation of Financial Statements:
Effective for annual periods beginning on or after
January 1, 2011, with earlier adoption permitted.
Entities may present the analysis of the components of other
comprehensive income either in the statement of changes in
equity or within the notes to the financial statements.
Amendment
to IAS 27, Consolidated and Separate Financial
Statements:
Effective for annual periods beginning on or after
January 1, 2011, with earlier adoption permitted.
The 2008 revisions to this standard resulted in consequential
amendments to IAS 21, The Effects of Changes in Foreign
Exchange Rates, IAS 28, Investments in Associates,
and IAS 31, Interests in Joint Ventures. IAS 27 now
provides that these amendments are to be applied prospectively.
Amendment
to IAS 34, Interim Financial Reporting:
Effective for annual periods beginning on or after
January 1, 2011, with earlier adoption permitted.
The amendments place greater emphasis on the disclosure
principles for interim financial reporting involving significant
events and transactions, including changes to fair value
measurements and the need to update relevant information from
the most recent annual report.
New or revised standards and interpretations:
In addition, the following new or revised standards and
interpretations have been issued but are not yet applicable to
the Company:
Amendments
to IAS 24, Related Party Disclosures:
Effective for annual periods beginning on or after
January 1, 2011, with earlier adoption permitted.
F-16
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
There are limited differences in the definition of what
constitutes a related party; however, the amendment requires
more detailed disclosures regarding commitments.
IFRS
8, Operating Segments:
Effective for annual periods beginning on or after
January 1, 2010.
Requires purchase information about segment assets.
New
standard IFRS 9, Financial Instruments:
Effective for annual periods beginning on or after
January 1, 2013, with earlier adoption permitted.
As part of the project to replace IAS 39, Financial Instruments:
Recognition and Measurement, this standard retains but
simplifies the mixed measurement model and establishes two
primary measurement categories for financial assets. More
specifically, the standard:
|
|
|
|
n
|
deals with classification and measurement of financial assets
|
|
|
n
|
establishes two primary measurement categories for financial
assets: amortized cost and fair value
|
|
|
n
|
classification depends on entitys business model and the
contractual cash flow characteristics of the financial asset
|
|
|
n
|
eliminates the existing categories: held to maturity, available
for sale, and loans and receivables.
|
Certain changes were also made regarding the fair value option
for financial liabilities and accounting for certain derivatives
linked to unquoted equity instruments.
|
|
4.
|
Revenue and
Deferred Revenue:
|
On October 28, 2008, the Company entered into a
collaboration and licensing agreement with EMD Serono Inc.
(EMD Serono), an affiliate of the Group Merck KGaA,
of Darmstadt, Germany, regarding the exclusive commercialization
rights of tesamorelin in the United States for the treatment of
excess abdominal fat in HIV-infected patients with lipodystrophy
(the Initial Product). The Company retains all
tesamorelin commercialization rights outside of the United
States.
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, which was obtained on
November 10, 2010. The Company is also responsible for
product production and for developing 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 (C$36,951), which includes an initial
payment of US$22,000 (C$27,097) and US$8,000 (C$9,854) as a
subscription for common shares in the Company by Merck KGaA at a
price of US$3.67 (C$4.52) per share. The Company may receive up
to US$215,000, 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 increasing royalties on annual net sales of
tesamorelin in the United States, if applicable.
The initial payment of $27,097 has been deferred and is being
amortized on a straight-line basis over the estimated period for
developing a new formulation of the Initial Product. This period
may be modified in the future based on additional information
that may be received by the Company. At November 30, 2010,
an amount of $6,846 (2009 $6,560) was recognized as
revenue. As at November 30, 2010, the deferred revenue
related to this transaction amounted to $13,692
(2009 $20,537).
F-17
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
On August 12, 2009, the FDA accepted the New Drug
Application (NDA) made by the Company for
tesamorelin. Under the terms of the Companys collaboration
and licensing agreement with EMD Serono, the acceptance of the
tesamorelin NDA resulted in a milestone payment of US$10,000
(C$10,884).
On November 10, 2010, the FDA approved
EGRIFTAtm
as the first approved treatment in the United States for the
reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy. By virtue of the collaboration and licensing
agreement entered into in 2008 with EMD Serono, the Company
received a milestone payment of US$25,000 (C$25,000) associated
with the FDA-approval of
EGRIFTAtm.
This payment was received by the Company on November 30,
2010.
The Company may conduct research and development activities for
additional indications. Under the collaboration and licensing
agreement, EMD Serono will also have the option to commercialize
additional indications for tesamorelin in the United States. 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 an
agreement with EMD Serono, to participate in promoting these
additional indications.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
NOTE
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
Salaries and short-term employee benefits
|
|
|
|
|
|
|
11,577
|
|
|
|
10,779
|
|
Post-employment benefits
|
|
|
|
|
|
|
579
|
|
|
|
542
|
|
Termination benefits
|
|
|
|
|
|
|
20
|
|
|
|
275
|
|
Share-based compensation
|
|
|
15
|
(iv)
|
|
|
1,133
|
|
|
|
997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total personnel expenses
|
|
|
|
|
|
|
13,309
|
|
|
|
12,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Selling and
Market Development Expenses:
|
In 2008, the Company completed a formal review of the strategic
alternatives regarding its operations which culminated in the
signing of the collaborative licensing agreement with EMD Serono
(note 4). As a result of this process, $4,269 was recorded
in 2009 for professional fees related to the closing of the
agreement with EMD Serono.
|
|
7.
|
Finance Income
and Finance Costs:
|
Recognized in net profit (loss):
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Interest income
|
|
|
1,562
|
|
|
|
2,123
|
|
Net gain on disposal of
available-for-sale
financial assets transferred from equity
|
|
|
326
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
|
1,888
|
|
|
|
2,252
|
|
Bank charges
|
|
|
(18
|
)
|
|
|
(26
|
)
|
Net foreign currency gain (loss)
|
|
|
511
|
|
|
|
(635
|
)
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
|
493
|
|
|
|
(661
|
)
|
|
|
|
|
|
|
|
|
|
Net finance income recognized in net profit (loss)
|
|
|
2,381
|
|
|
|
1,591
|
|
|
|
|
|
|
|
|
|
|
F-18
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Recognized in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Net change in fair value of
available-for-sale
financial assets
|
|
|
(390
|
)
|
|
|
1,039
|
|
Net change in fair value of
available-for-sale
financial assets transferred to net profit (loss)
|
|
|
(326
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
Finance (costs) income recognized in other comprehensive income,
net of tax
|
|
|
(716
|
)
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
Bonds are interest-bearing
available-for-sale
financial assets, with a carrying amount of $37,901 as at
November 30, 2010 ($61,843 in 2009, and $46,204 as at
December 1, 2008), have stated interest rates of 2.37% to
6.75% (2.37% to 6.75% in 2009 and 3.00% to 6.85% as at
December 1, 2008) and mature in 1.9 year (2.16 in
2009 and 1.8 in 2008).
The Companys exposure to credit and interest rate risks
related to bonds is presented in note 20.
|
|
9.
|
Trade and Other
Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
DECEMBER 1,
|
|
|
|
NOTE
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Trade receivables
|
|
|
|
|
|
|
6
|
|
|
|
3
|
|
|
|
12
|
|
Sales tax receivable
|
|
|
|
|
|
|
100
|
|
|
|
190
|
|
|
|
419
|
|
Loans granted to employees under the share purchase plan
|
|
|
15
|
(iii)
|
|
|
25
|
|
|
|
74
|
|
|
|
91
|
|
Loans granted to related parties under the share purchase plan
|
|
|
15
|
(iii)
|
|
|
22
|
|
|
|
75
|
|
|
|
59
|
|
Other receivables
|
|
|
|
|
|
|
8
|
|
|
|
33
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
375
|
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys exposure to credit and currency risks related
to trade and other receivables is presented in note 20.
|
|
10.
|
Tax Credits and
Grants Receivable:
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Balance at beginning of the year
|
|
|
1,333
|
|
|
|
1,451
|
|
Investment tax credits and grants received
|
|
|
(1,935
|
)
|
|
|
(1,913
|
)
|
Investment tax credits and grants recognized in net profit (loss)
|
|
|
934
|
|
|
|
1,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
332
|
|
|
|
1,333
|
|
|
|
|
|
|
|
|
|
|
Tax credits and grants receivable comprise research and
development investment tax credits receivable from the
provincial government which relate to qualifiable research and
development expenditures under the
F-19
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
applicable tax laws. The amounts recorded as receivable are
subject to a government tax audit and the final amounts received
may differ from those recorded. There are no unfulfilled
conditions or contingencies associated with the government
assistance received.
Unused federal tax credits may be used to reduce future income
tax and expire as follows:
|
|
|
|
|
|
|
$
|
|
|
2023
|
|
|
452
|
|
2024
|
|
|
1,597
|
|
2025
|
|
|
1,863
|
|
2026
|
|
|
2,178
|
|
2027
|
|
|
3,000
|
|
2028
|
|
|
3,328
|
|
2029
|
|
|
2,250
|
|
2030
|
|
|
1,167
|
|
|
|
|
|
|
|
|
|
15,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
DECEMBER 1,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Raw materials
|
|
|
3,395
|
|
|
|
2,225
|
|
|
|
|
|
Work in progress
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,317
|
|
|
|
2,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2010, $123 of raw materials, and $69 of work in progress were
written down to their net realizable value (November 30,
2009 nil and nil; December 1, 2008
nil and nil). Consequently, a write-down of $192 was recorded to
cost of sales in 2010 (2009 nil).
The write-down was due to unfavourable pricing related to raw
materials that were not originally purchased under the
conditions of the Companys current long-term procurement
agreements.
F-20
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
|
|
12.
|
Property and
Equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OFFICE
|
|
|
|
|
|
|
|
|
|
COMPUTER
|
|
|
LABORATORY
|
|
|
FURNITURE AND
|
|
|
LEASEHOLD
|
|
|
|
|
|
|
EQUIPMENT
|
|
|
EQUIPMENT
|
|
|
EQUIPMENT
|
|
|
IMPROVEMENTS
|
|
|
TOTAL
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 1, 2008
|
|
|
682
|
|
|
|
1,824
|
|
|
|
1,015
|
|
|
|
1,846
|
|
|
|
5,367
|
|
Additions
|
|
|
222
|
|
|
|
125
|
|
|
|
188
|
|
|
|
8
|
|
|
|
543
|
|
Disposals
|
|
|
(30
|
)
|
|
|
(4
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2009
|
|
|
874
|
|
|
|
1,945
|
|
|
|
1,124
|
|
|
|
1,854
|
|
|
|
5,797
|
|
Additions
|
|
|
130
|
|
|
|
116
|
|
|
|
7
|
|
|
|
46
|
|
|
|
299
|
|
Disposals
|
|
|
(63
|
)
|
|
|
(43
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2010
|
|
|
941
|
|
|
|
2,018
|
|
|
|
1,129
|
|
|
|
1,900
|
|
|
|
5,988
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 1, 2008
|
|
|
500
|
|
|
|
1,427
|
|
|
|
700
|
|
|
|
1,441
|
|
|
|
4,068
|
|
Depreciation for the year
|
|
|
147
|
|
|
|
96
|
|
|
|
79
|
|
|
|
290
|
|
|
|
612
|
|
Disposals
|
|
|
(30
|
)
|
|
|
(4
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2009
|
|
|
617
|
|
|
|
1,519
|
|
|
|
701
|
|
|
|
1,731
|
|
|
|
4,568
|
|
Depreciation for the year
|
|
|
170
|
|
|
|
88
|
|
|
|
85
|
|
|
|
123
|
|
|
|
466
|
|
Disposals
|
|
|
(63
|
)
|
|
|
(41
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2010
|
|
|
724
|
|
|
|
1,566
|
|
|
|
784
|
|
|
|
1,854
|
|
|
|
4,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2008
|
|
|
182
|
|
|
|
397
|
|
|
|
315
|
|
|
|
405
|
|
|
|
1,299
|
|
November 30, 2009
|
|
|
257
|
|
|
|
426
|
|
|
|
423
|
|
|
|
123
|
|
|
|
1,229
|
|
November 30, 2010
|
|
|
217
|
|
|
|
452
|
|
|
|
345
|
|
|
|
46
|
|
|
|
1,060
|
|
Depreciation expense for the year has been recorded in the
following accounts in the consolidated statement of
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Cost of sales
|
|
|
8
|
|
|
|
|
|
Research and development expenses
|
|
|
231
|
|
|
|
306
|
|
Selling and market development expenses
|
|
|
10
|
|
|
|
14
|
|
General and administrative expenses
|
|
|
217
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
466
|
|
|
|
612
|
|
|
|
|
|
|
|
|
|
|
F-21
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
|
|
13.
|
Accounts Payable
and Accrued Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
DECEMBER 1,
|
|
|
|
NOTE
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Trade payables
|
|
|
|
|
|
|
1,001
|
|
|
|
1,984
|
|
|
|
284
|
|
Accrued liabilities and other payables
|
|
|
|
|
|
|
1,440
|
|
|
|
1,768
|
|
|
|
4,692
|
|
Salaries and benefits due to related parties
|
|
|
25
|
|
|
|
565
|
|
|
|
450
|
|
|
|
504
|
|
Employee salaries and benefits payable
|
|
|
|
|
|
|
1,971
|
|
|
|
1,366
|
|
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,977
|
|
|
|
5,568
|
|
|
|
6,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys exposure to currency and liquidity risks
related to accounts payable and accrued liabilities is presented
in note 20.
Other liabilities consist of deferred lease inducements relating
to rent free periods amounting to $325 as at November 30,
2010 (November 30, 2009 and December 1,
2008 nil) (note 17).
Authorized in unlimited number and without par value:
Common shares
Preferred shares issuable in one or more series
All issued shares are fully paid, except for 33,524
(2009 90,298) issued under the share purchase plan
and for which the loan has not been repaid in full (see
note 15 (iii)).
Common shareholders are entitled to receive dividends as
declared by the Company at its discretion and are entitled to
one vote per share at the Companys annual general meeting.
No preferred shares are outstanding.
In 2010, the Company received subscriptions in the amount of $15
for the issuance of 2,880 common shares in connection with its
share purchase plan.
2009:
Under the terms of the collaboration and licensing agreement
with EMD Serono, the Company issued 2,179,837 common shares for
a cash consideration of $9,854 (see note 4).
In 2009, the Company also received subscriptions in the amount
of $96 for the issuance of 34,466 common shares in connection
with its share purchase plan.
All shares issued were for cash consideration.
|
|
(ii)
|
Shareholder
Rights Plan:
|
On February 10, 2010, the Companys Board of Directors
adopted a shareholder rights plan (the Plan),
effective as of that date. The Plan is designed to provide
adequate time for the Board of Directors and the shareholders,
to assess an unsolicited takeover bid for the Company. In
addition, the Plan provides the Board of Directors with
sufficient time to explore and develop alternatives for
maximizing shareholder value if a takeover bid is made, as well
as provide shareholders with an equal opportunity to participate
in a takeover bid to receive full and fair value for their
common shares. The Plan will expire at the close of the
Companys annual meeting of shareholders in 2013.
F-22
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
The rights issued under the Plan will initially attach to and
trade with the common shares and no separate certificates will
be issued unless a triggering event occurs. The rights will
become exercisable only when a person, including any party
related to it, acquires or attempts to acquire 20% or more of
the outstanding shares without complying with the
Permitted Bid provisions of the Plan or without
approval of the Board of Directors. Should such an acquisition
occur or be announced, each right would, upon exercise, entitle
a rights holder, other than the acquiring person and related
persons, to purchase common shares at a 50% discount to the
market price at the time.
Under the Plan, a Permitted Bid is a bid made to all holders of
the common shares and which is open for acceptance for not less
than 60 days. If at the end of 60 days at least 50% of
the outstanding common shares, other than those owned by the
offeror and certain related parties, have been tendered, the
offeror may take up and pay for the common shares, but must
extend the bid for a further 10 days to allow other
shareholders to tender.
|
|
(iii)
|
Share Purchase
Plan:
|
The Share Purchase Plan entitles full-time and part-time
employees of the Company who, on the participation date, are
residents of Canada, are not under a probationary period and do
not hold, directly or indirectly, five percent (5%) or more of
the Companys outstanding common shares, to directly
subscribe for common shares of the Company. Under the Share
Purchase Plan, a maximum of 550,000 common shares may be issued
to employees.
On May 1 and November 1 of each year (the Participation
Dates), an employee may subscribe for a number of common
shares under the Share Purchase Plan for an amount that does not
exceed 10% of that employees gross annual salary for that
year. Under the Share Purchase Plan, the Board of Directors has
the authority to suspend or defer a subscription of common
shares, or to decide that no subscription of common shares will
be allowed on a Participation Date if it is in the
Companys best interest.
The Share Purchase Plan provides that the number of common
shares that may be issued to insiders, at any time, under all
share-based compensation arrangements of the Company, cannot
exceed 10% of the Companys outstanding common shares, and
the number of common shares issued to insiders, within any
one-year period, under all security-based compensation
arrangements, cannot exceed 10% of the outstanding common shares.
The subscription price for each new common share subscribed for
under the Share Purchase Plan is equal to the weighted average
closing price of the common shares on the Toronto Stock Exchange
during a period of five days prior to the Participation Date.
Employees may not assign the rights granted under the Share
Purchase Plan.
An employee may elect to pay the subscription price for common
shares in cash or through an interest-free loan from the
Company. Loans granted by the Company under the Share Purchase
Plan are repayable through salary withholdings over a period not
exceeding two years. All loans may be repaid prior to the
scheduled repayment at any time. The loans granted to any
employee may at no time exceed 10% of that employees
current annual gross salary. All common shares purchased through
an interest-free loan are hypothecated to secure full and final
repayment of the loan and are held by a trustee until repayment
in full. Loans are immediately due and payable on the occurrence
of any of the following events: (i) termination of
employment; (ii) sale or seizure of the hypothecated common
shares; (iii) bankruptcy or insolvency of the employee; or
(iv) suspension of the payment of an employees salary
or revocation of the employees right to salary
withholdings.
At November 30, 2010, $47 (November 30,
2009 $149; December 1, 2008 $150)
was receivable under these loans (see note 9).
F-23
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
The Company has established a stock option plan under which it
can grant to its directors, officers, employees, researchers and
consultants non-transferable options for the purchase of common
shares. The exercise date of an option may not be later than
10 years after the grant date. A maximum number of
5,000,000 options can be granted under the plan. Generally, the
options vest at the date of the grant or over a period up to
5 years. As at November 30, 2010, 981,005 options
could still be granted by the Company (2009
1,244,834).
All options are to be settled by physical delivery of shares.
Changes in the number of options outstanding during the past two
years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
EXERCISE PRICE
|
|
|
|
OPTIONS
|
|
|
PER OPTION
|
|
|
|
|
|
|
$
|
|
|
Options at December 1, 2008
|
|
|
2,161,800
|
|
|
|
6.52
|
|
Granted
|
|
|
680,500
|
|
|
|
1.83
|
|
Expired
|
|
|
(58,500
|
)
|
|
|
5.16
|
|
Forfeited
|
|
|
(118,000
|
)
|
|
|
9.92
|
|
|
|
|
|
|
|
|
|
|
Options at November 30, 2009
|
|
|
2,665,800
|
|
|
|
5.20
|
|
Granted
|
|
|
335,000
|
|
|
|
4.03
|
|
Expired
|
|
|
(32,500
|
)
|
|
|
11.15
|
|
Forfeited
|
|
|
(38,671
|
)
|
|
|
3.61
|
|
Exercised (weighted average share price: $5.14)
|
|
|
(80,491
|
)
|
|
|
1.66
|
|
|
|
|
|
|
|
|
|
|
Options at November 30, 2010
|
|
|
2,849,138
|
|
|
|
5.12
|
|
|
|
|
|
|
|
|
|
|
Exercisable at November 30, 2010
|
|
|
2,196,403
|
|
|
|
5.77
|
|
|
|
|
|
|
|
|
|
|
The following table provides stock option information as at
November 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIONS OUTSTANDING
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
WEIGHTED
|
|
|
|
NUMBER OF
|
|
|
REMAINING
|
|
|
AVERAGE
|
|
|
|
OPTIONS
|
|
|
LIFE
|
|
|
EXERCISE
|
|
PRICE RANGE ($)
|
|
OUTSTANDING
|
|
|
(YEARS)
|
|
|
PRICE
|
|
|
|
|
|
|
|
|
|
$
|
|
|
1.20 2.00
|
|
|
1,183,015
|
|
|
|
6.54
|
|
|
|
1.71
|
|
2.01 2.75
|
|
|
141,459
|
|
|
|
3.85
|
|
|
|
2.59
|
|
2.76 3.75
|
|
|
70,000
|
|
|
|
5.51
|
|
|
|
3.37
|
|
3.76 4.60
|
|
|
265,000
|
|
|
|
9.03
|
|
|
|
3.84
|
|
4.61 6.00
|
|
|
95,000
|
|
|
|
7.69
|
|
|
|
4.93
|
|
6.01 9.00
|
|
|
570,664
|
|
|
|
4.82
|
|
|
|
8.17
|
|
9.01 13.50
|
|
|
480,000
|
|
|
|
2.86
|
|
|
|
10.72
|
|
13.51 15.30
|
|
|
44,000
|
|
|
|
0.36
|
|
|
|
15.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,849,138
|
|
|
|
5.59
|
|
|
|
5.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
The fair value of options granted was estimated at the grant
date using the Black-Scholes model and the following weighted
average assumptions:
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
NOVEMBER 30,
|
|
|
2010
|
|
2009
|
|
Risk-free interest rate
|
|
|
2.49
|
%
|
|
|
1.83
|
%
|
Expected volatility
|
|
|
81.13
|
%
|
|
|
79.50
|
%
|
Average option life in years
|
|
|
7.5
|
|
|
|
7.5
|
|
Expected dividends
|
|
|
nil
|
|
|
|
nil
|
|
Grant-date share price
|
|
$
|
4.03
|
|
|
$
|
1.83
|
|
Option exercise price
|
|
$
|
4.03
|
|
|
$
|
1.83
|
|
The risk-free interest rate is based on the implied yield on a
Canadian Government 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 life
of the option. The life of the options is estimated considering
the vesting period at the grant date, the life of the option and
the average length of time similar grants have remained
outstanding in the past. The 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 measurement date weighted
average fair value of stock options granted during the years
ended November 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
NUMBER OF
|
|
|
GRANT-DATE
|
|
|
|
OPTIONS
|
|
|
FAIR VALUE
|
|
|
|
|
|
|
$
|
|
|
2010
|
|
|
335,000
|
|
|
|
3.05
|
|
2009
|
|
|
680,500
|
|
|
|
1.36
|
|
The Black-Scholes model used by the Company to calculate option
values was developed to estimate the fair value of freely
tradable, fully transferable options without vesting
restrictions, which significantly differs from the
Companys stock option awards. This model also requires
four highly subjective assumptions, including future stock price
volatility and average option life, which greatly affect the
calculated values.
The calculation of basic earnings per share at November 30,
2010 was based on the net profit (loss) attributable to common
shareholders of the Company of $8,930 (2009 -($15,156)), and a
weighted average number of common shares outstanding of
60,480,032 (2009 60,314,309), calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Issued common shares at December 1
|
|
|
60,429,393
|
|
|
|
58,215,090
|
|
Effect of share options exercised
|
|
|
49,030
|
|
|
|
|
|
Effect of shares issued during the year
|
|
|
1,609
|
|
|
|
2,099,219
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares at November 30
|
|
|
60,480,032
|
|
|
|
60,314,309
|
|
|
|
|
|
|
|
|
|
|
F-25
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
The calculation of diluted earnings per share was based on a
weighted average number of common shares calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Weighted average number of common shares (basic)
|
|
|
60,480,032
|
|
|
|
60,314,309
|
|
Effect of stock options on issue
|
|
|
842,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares (diluted) at November 30
|
|
|
61,322,991
|
|
|
|
60,314,309
|
|
|
|
|
|
|
|
|
|
|
At November 30, 2010, 1,119,664 options (2009
1,371,167) were excluded from the diluted weighted average
number of common shares calculation as their effect would have
been anti-dilutive.
The average market value of the Companys shares for
purposes of calculating the dilutive effect of share options was
based on quoted market prices for the period during which the
options were outstanding.
Current tax expense:
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Current tax expense:
|
|
|
|
|
|
|
|
|
Current tax expense for the year
|
|
|
3,285
|
|
|
|
|
|
Recognition of previously unrecognized tax losses
|
|
|
(3,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Income tax expense
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense:
|
|
|
|
|
|
|
|
|
Recognition and reversal of temporary differences
|
|
|
|
|
|
|
(4,031
|
)
|
Change in unrecognized deductible temporary differences
|
|
|
|
|
|
|
4,031
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation between effective and applicable tax amounts:
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Income taxes at domestic tax statutory rate
|
|
|
2,713
|
|
|
|
(4,683
|
)
|
Change in unrecognized deductible temporary differences
|
|
|
(3,171
|
)
|
|
|
4,031
|
|
Non-deductible expenses and other
|
|
|
572
|
|
|
|
652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
Deferred tax asset of $114 (2009 nil) related to
share issue costs was recognized directly in equity.
F-26
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Unrecognized
deferred tax assets:
At November 30, 2010, temporary differences for which no
deferred tax asset was recognized were as follows:
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
30,143
|
|
|
|
29,380
|
|
Deferred non-capital losses
|
|
|
21,013
|
|
|
|
21,490
|
|
Property and equipment
|
|
|
609
|
|
|
|
674
|
|
Intellectual property and patent fees
|
|
|
9,230
|
|
|
|
12,307
|
|
Available deductions and other
|
|
|
4,648
|
|
|
|
4,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,643
|
|
|
|
68,814
|
|
|
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income. The
generation of future taxable income is dependent on the
successful commercialization of the Companys products and
technologies.
Given the Companys past losses, management does not
believe that it is more probable than not that the Company can
realize its deferred tax assets and therefore it has not
recognized any amount in the statement of financial position.
At November 30, 2010, the amounts and expiry dates of tax
attributes to be deferred for which no deferred tax asset was
recognized were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
FEDERAL
|
|
|
PROVINCIAL
|
|
|
FEDERAL
|
|
|
PROVINCIAL
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Research and development expenses, without time limitation
|
|
|
103,324
|
|
|
|
123,062
|
|
|
|
103,346
|
|
|
|
115,686
|
|
Losses carried forward:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
1,216
|
|
|
|
|
|
|
|
9,603
|
|
|
|
|
|
2015
|
|
|
275
|
|
|
|
|
|
|
|
275
|
|
|
|
|
|
2027
|
|
|
7,638
|
|
|
|
7,628
|
|
|
|
7,638
|
|
|
|
7,628
|
|
2028
|
|
|
46,316
|
|
|
|
32,174
|
|
|
|
46,316
|
|
|
|
46,271
|
|
2029
|
|
|
19,484
|
|
|
|
16,467
|
|
|
|
21,785
|
|
|
|
18,802
|
|
2030
|
|
|
11,440
|
|
|
|
11,436
|
|
|
|
|
|
|
|
|
|
Other temporary differences, without time limitation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of tax value of property and equipment over carrying value
|
|
|
2,773
|
|
|
|
1,666
|
|
|
|
3,121
|
|
|
|
1,785
|
|
Tax value of intellectual property and patent fees
|
|
|
34,301
|
|
|
|
34,289
|
|
|
|
45,735
|
|
|
|
45,718
|
|
Available deductions and other
|
|
|
57,343
|
|
|
|
1,412
|
|
|
|
58,415
|
|
|
|
2,732
|
|
F-27
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
The Company rents its headquarters and main office pursuant to
an operating lease (the Lease) expiring in
April 2021. Under the terms of the Lease, the Company has
also been granted two renewal options for periods of five years
each. Lease payments will increase by 11% beginning on
November 1, 2015.
During the year ended November 30, 2010, an amount of $628
was recognized as an expense in respect of operating leases
(2009 $805). Of the amount $133 (2009
$176) is included in General and administrative expenses and
$495 (2009 $629) is included in Research and
development expenses.
The Companys lease includes a lease of land and building.
Since the land title does not pass, and the Company does not
participate in the residual value of the building, it was
determined that substantially all the risks and rewards of the
building are with the lessor. As such, the Company determined
that the lease is an operating lease.
The Company has committed to pay the lessor for its share of
some operating expenses of the leased premises. This amount has
been set at $240 per year beginning May 1, 2010 and will be
increased by 2.5% annually for the duration of the Lease. Refer
to note 23 for the contractual commitments related to this
lease.
The lessor granted the Company a monetary allowance in the
amount of $728 to make leasehold improvements. This amount had
not been received as at November 30, 2010. Furthermore, the
Company benefits from a
25-month
rent free period which is deferred and recognized over the lease
term. As at November 30, 2010, $325 was included in Other
liability (nil November 30, 2009) in
regards to the deferred free rent inducement
(note 14 Other liabilities).
The Company had issued an irrevocable letter of credit in favour
of the lessor in the amount of $323 under the terms of the Lease
renewal, along with a first ranking movable hypothec in the
amount of $1,150 covering all the Companys tangible assets
located in the rented premises. The letter of credit and the
hypothec were cancelled on April 30, 2010.
|
|
18.
|
Contingent
Liability:
|
On July 26, 2010, the Company received a motion of
authorization to institute a class action lawsuit against the
Company, a director and a former executive officer (the
Motion). This 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 certain alleged adverse effects relating to
the administration of
EGRIFTAtm.
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.
The Motion had not yet been heard by the Superior Court of
Quebec and a date has not been set for the hearing.
The Company has subscribed to insurance covering its potential
liability and the potential liability of its directors and
officers in the performance of their duties for the Company
subject to a $200 deductible. At November 30, 2010, an
amount of $96 in legal fees has been accrued and included in
general and administrative expenses, of which $61 was paid
during the year and $35 remained in accounts payable and accrued
liabilities.
|
|
19.
|
Statement of Cash
Flows:
|
The Company entered into the following transactions which had no
impact on the cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
DECEMBER 1,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Additions to property and equipment included in accounts payable
and accrued liabilities
|
|
|
65
|
|
|
|
183
|
|
|
|
48
|
|
Share issue costs included in accounts payable and accrued
liabilities
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
In addition, interest received totalled $2,290 (2009
$1,200).
F-28
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
|
|
20.
|
Financial
Instruments:
|
Overview:
This note provides disclosures relating to the nature and extent
of the Companys exposure to risks arising from financial
instruments, including credit risk, liquidity risk, currency
risk and interest rate risk, and how the Company manages those
risks.
Credit risk is the risk of an unexpected loss if a customer or
counterparty to a financial instrument fails to meet its
contractual obligations. The Company regularly monitors credit
risk exposure and takes steps to mitigate the likelihood of this
exposure resulting in losses.
The Companys exposure to credit risk currently relates to
accounts receivable with only one customer (see note 4).
Financial instruments other than cash and trade and other
receivables that potentially subject the Company to significant
credit risk consist principally of bonds. The Company invests
its available cash in highly liquid fixed income instruments
from governmental, paragovernmental and municipal bodies
($37,542 as at November 30, 2010) as well as from
companies with high credit ratings ($359 as at November 30,
2010). As at November 30, 2010, the Company was not exposed
to any credit risk over the carrying amount of the bonds.
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they become due. As indicated
in the capital management section below, the Company manages
this risk through the management of its capital structure. It
also manages liquidity risk by continuously monitoring actual
and projected cash flows. The Board of Directors
and/or the
Audit Committee reviews and approves the Companys
operating and capital budgets, as well as any material
transactions out of the ordinary course of business.
The Company has adopted an investment policy in respect of the
safety and preservation of its capital to ensure the
Companys liquidity needs are met. The instruments are
selected with regard to the expected timing of expenditures and
prevailing interest rates.
The following are amounts due on the contractual maturities of
financial liabilities as at November 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30, 2010
|
|
|
|
|
|
|
CARRYING
|
|
|
LESS THAN
|
|
|
1 TO
|
|
|
MORE THAN
|
|
|
|
TOTAL
|
|
|
AMOUNT
|
|
|
1 YEAR
|
|
|
5 YEARS
|
|
|
5 YEARS
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Accounts payable and accrued liabilities
|
|
|
4,977
|
|
|
|
4,977
|
|
|
|
4,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30, 2009
|
|
|
|
|
|
|
CARRYING
|
|
|
LESS THAN
|
|
|
1 TO
|
|
|
MORE THAN
|
|
|
|
TOTAL
|
|
|
AMOUNT
|
|
|
1 YEAR
|
|
|
5 YEARS
|
|
|
5 YEARS
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Accounts payable and accrued liabilities
|
|
|
5,568
|
|
|
|
5,568
|
|
|
|
5,568
|
|
|
|
|
|
|
|
|
|
|
The Company is exposed to financial risk related to the
fluctuation of foreign exchange rates and the degree of
volatility of those rates. Currency risk is limited to the
portion of the Companys business transactions denominated
in currencies other than the Canadian dollar, primarily revenues
from milestone payments and expenses for research and
development incurred in US dollars, euros and
F-29
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
pounds sterling (GBP). The Company does not use
derivative financial instruments to reduce its foreign exchange
exposure.
The Company manages currency risk by maintaining cash in US
dollars on hand to support US forecasted cash budgets for a
maximum
12-month
period. The Company does not currently view its exposure to the
euro and GBP as a significant foreign exchange risk due to the
limited volume of transactions conducted by the Company in these
currencies.
Exchange rate fluctuations for foreign currency transactions can
cause cash flows as well as amounts recorded in the consolidated
statement of comprehensive income to vary from period to period
and not necessarily correspond to those forecasted in operating
budgets and projections. Additional earnings variability arises
from the translation of monetary assets and liabilities
denominated in currencies other than the Canadian dollar at the
rates of exchange at each consolidated statement of financial
position date, the impact of which is reported as foreign
exchange gain or loss in the consolidated statement of
comprehensive income. Given the Companys policy on the
management of the Companys US foreign currency risk, the
Company does not believe a sudden change in foreign exchange
rates would impair or enhance its ability to pay its US dollar
denominated obligations.
The following table presents the significant items exposed to
currency risk at the following dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30, 2010
|
|
|
|
$US
|
|
|
EURO
|
|
|
GBP
|
|
|
Cash
|
|
|
26,424
|
|
|
|
|
|
|
|
1
|
|
Trade and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(465
|
)
|
|
|
(26
|
)
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items exposed to currency risk
|
|
|
25,959
|
|
|
|
(26
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30, 2009
|
|
|
|
$US
|
|
|
EURO
|
|
|
GBP
|
|
|
Cash
|
|
|
1,471
|
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(1,095
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items exposed to currency risk
|
|
|
376
|
|
|
|
4
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 1, 2008
|
|
|
|
$US
|
|
|
EURO
|
|
|
GBP
|
|
|
Cash
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(2,589
|
)
|
|
|
(159
|
)
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items exposed to currency risk
|
|
|
(2,588
|
)
|
|
|
(159
|
)
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
The following exchange rates are those applicable to the
following periods and dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30, 2010
|
|
|
NOVEMBER 30, 2009
|
|
|
DECEMBER 1, 2008
|
|
|
|
AVERAGE
|
|
|
REPORTING
|
|
|
AVERAGE
|
|
|
REPORTING
|
|
|
AVERAGE
|
|
|
REPORTING
|
|
|
|
RATE
|
|
|
DATE RATE
|
|
|
RATE
|
|
|
DATE RATE
|
|
|
RATE
|
|
|
DATE RATE
|
|
|
$US C$
|
|
|
1.0345
|
|
|
|
1.0266
|
|
|
|
1.0594
|
|
|
|
1.0556
|
|
|
|
1.0479
|
|
|
|
1.2370
|
|
EURO C$
|
|
|
1.3848
|
|
|
|
1.3326
|
|
|
|
1.5808
|
|
|
|
1.5852
|
|
|
|
1.5440
|
|
|
|
1.5711
|
|
GBP C$
|
|
|
1.6051
|
|
|
|
1.5969
|
|
|
|
1.7597
|
|
|
|
1.7366
|
|
|
|
1.9767
|
|
|
|
1.9060
|
|
|
Based on the Companys foreign currency exposures noted
above, varying the above foreign exchange rates to reflect a 5%
strengthening of the Canadian dollar would have increased the
net profit (loss) as follows, assuming that all other variables
remained constant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30, 2010
|
|
NOVEMBER 30, 2009
|
|
|
$US
|
|
EURO
|
|
GBP
|
|
$US
|
|
EURO
|
|
GBP
|
|
Increase in net profit (loss)
|
|
|
1,298
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
19
|
|
|
|
|
|
|
|
(1
|
)
|
|
An assumed 5% weakening of the Canadian dollar would have had an
equal but opposite effect on the above currencies to the amounts
shown above, assuming that all other variables remain constant.
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
Short-term bonds held by the Company are invested at fixed
interest rates
and/or
mature in the short-term. Long-term bonds are also instruments
that bear interest at fixed rates. The risk that the Company
will realize a loss as a result of a decline in the fair value
of its bonds is limited because these investments, although they
are classified as available for sale, are generally held to
maturity. The unrealized gains or losses on bonds are recorded
in accumulated other comprehensive income.
Based on the value of the Companys short and long-term
bonds at November 30, 2010, an assumed 0.5% decrease in
market interest rates would have increased the fair value of
these bonds and the accumulated other comprehensive income by
approximately $336; an assumed increase in interest rate of 0.5%
would have an equal but opposite effect, assuming that all other
variables remained constant.
Cash bears interest at a variable rate. Trade and other
receivables, accounts payable and accrued liabilities bear no
interest.
Based on the average value of variable interest-bearing cash
during the year ended November 30, 2010 ($3,219), an
assumed 0.5% increase in interest rates during such period would
have increased future cash flow and net profit by approximately
$16; an assumed decrease of 0.5% would have had an equal but
opposite effect.
The Companys objective in managing capital is to ensure a
sufficient liquidity position to finance its research and
development activities, general and administrative expenses,
working capital and capital spending.
To fund its activities, the Company relied primarily on public
offerings of common shares in Canada and private placements of
its common shares as well as up-front payments and milestone
payments primarily associated with EMD Serono. When possible,
the Company optimizes its liquidity position using non-dilutive
sources, including investment tax credits, grants and interest
income.
F-31
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
The Company has a $1,800 revolving credit facility for its
short-term financing needs which was unused at November 30,
2010 (see note 23 (c)).
The capital management objectives remain the same as for the
previous year.
At November 30, 2010, cash and bonds amounted to $64,550
and tax credits and grants receivable amounted to $332, for a
total of $64,882. The Company believes that its cash position
will be sufficient to finance its operations and capital needs
for the next year.
Currently, the Companys general policy on dividends is to
retain cash to keep funds available to finance the
Companys growth.
The Company is not subject to any externally imposed capital
requirements.
|
|
22.
|
Determination of
Fair Values:
|
Certain of the Companys accounting policies and
disclosures require the determination of fair value, for both
financial and non-financial assets and liabilities. Fair values
have been determined for measurement
and/or
disclosure purposes based on the following methods. When
applicable, further information about the assumptions made in
determining fair values is disclosed in the notes specific to
that asset or liability.
Financial
Assets and Liabilities:
In establishing fair value, the Company uses a fair value
hierarchy based on levels as defined below:
|
|
|
|
n
|
Level 1: defined as observable inputs such as
quoted prices in active markets.
|
|
|
n
|
Level 2: defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable.
|
|
|
n
|
Level 3: defined as inputs that are based on
little or no observable market data, therefore requiring
entities to develop its own assumptions.
|
The Company has determined that the carrying values of its
short-term financial assets and liabilities, including cash,
trade and other receivables as well as accounts payable and
accrued liabilities, approximate their fair value because of the
relatively short period to maturity of the instruments.
Bonds are stated at estimated fair value, determined by inputs
that are primarily based on broker quotes at the reporting date
(Level 2).
Share-Based
Payment Transactions:
The fair value of the employee stock options is measured based
on the Black-Scholes valuation model. Measurement inputs include
share price on measurement date, exercise price of the
instrument, expected volatility (based on weighted average
historic volatility adjusted for changes expected due to
publicly available information), weighted average expected life
of the instruments (based on historical experience and general
option holder behaviour), expected dividends, and the risk-free
interest rate (based on government bonds). Service and
non-market performance conditions attached to the transactions
are not taken into account in determining fair value.
F-32
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
At November 30, 2010 and 2009 and December 1, 2008,
the minimum payments required under the terms of the
non-cancellable lease are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
DECEMBER 1,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Less than one year
|
|
|
55
|
|
|
|
340
|
|
|
|
816
|
|
Between one and five years
|
|
|
2,239
|
|
|
|
2,020
|
|
|
|
340
|
|
More than five years
|
|
|
3,943
|
|
|
|
4,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,237
|
|
|
|
6,576
|
|
|
|
1,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
Long-term
Procurement Agreements:
|
During and after the years ended November 30, 2010 and
2009, the Company entered into long-term procurement agreements
with third-party suppliers in anticipation of the
commercialization of
EGRIFTAtm.
The Company has a $1,800 revolving credit facility, bearing
interest at prime plus 0.5%. Under the term of the credit
facility, the market value of investments held must always be
equivalent to 150% of amounts drawn under the facility. If the
market value falls below $7,000, the Company will provide the
bank with a first rank movable hypothec (security interest) of
$1,850 on securities judged satisfactory by the bank.
As at November 30, 2010 and 2009, the Company did not have
any borrowings outstanding under this credit facility.
The Company has a single operating segment. As described in
note 4, all of the Companys revenues are generated
from one customer, EMD Serono, which is domiciled in the United
States.
All of the Companys non-current assets are located in
Canada, the Companys headquarters.
The Company has a related party relationship with its
wholly-owned subsidiaries. There are no transactions between the
Company and its subsidiaries.
The key management personnel of the Company are the Directors.
Key management personnel compensation comprised:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
NOVEMBER 30,
|
|
|
|
NOTE
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
Short-term employee benefits
|
|
|
|
|
|
|
1,891
|
|
|
|
1,647
|
|
Post-employment benefits
|
|
|
|
|
|
|
61
|
|
|
|
59
|
|
Share-based compensation
|
|
|
15
|
(iv)
|
|
|
331
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,283
|
|
|
|
1,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors of the Company control 1.2 percent of the voting
shares of the Company.
F-33
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
On November 30, 2010, loans granted to key management
personnel under share purchase plan (note 15 (iii)) amount to
$22 as at November 30, 2010 ($75 as at November 30,
2009 and $59 as at December 1, 2008).
Distribution
and Licensing Agreement:
On December 6, 2010, the Company announced the signing of a
distribution and licensing agreement with Sanofi-aventis
(Sanofi), covering the commercial rights for
EGRIFTAtm
in Latin America, Africa, and the Middle East for the treatment
of excess abdominal fat in HIV-infected patients with
lipodystrophy.
Under the terms of the agreement, the Company will sell
EGRIFTAtm
to Sanofi at a transfer price equal to the higher of a
percentage of Sanofis net selling price and a
predetermined floor price. The Company has retained all future
development rights to
EGRIFTAtm
and will be responsible for conducting research and development
for any additional potential indications. Sanofi will be
responsible for conducting all regulatory activities for
EGRIFTAtm
in the aforementioned territories, including applications for
approval in the different countries for the treatment of excess
abdominal fat in HIV-infected patients with lipodystrophy. The
Company also granted Sanofi an option to commercialize
tesamorelin for other indications in the territories mentioned
above. If such option is not exercised, or is declined, by
Sanofi, the Company may commercialize tesamorelin for such
indications on its own or with a third party.
On February 3, 2011, the Company entered into a
distribution and licensing agreement with Ferrer covering the
commercial rights for
EGRIFTAtm
for the treatment of excess abdominal fat in HIV-infected
patients with lipodystrophy in Europe, Russia, South Korea,
Taiwan, Thailand and certain central Asian countries.
Under the terms of the Agreement, the Company will sell
EGRIFTAtm
to Ferrer at a transfer price equal to the higher of a
significant percentage of the Ferrers net selling price
and a predetermined floor price. The Company has retained all
development rights to
EGRIFTAtm
for other indications and will be responsible for conducting
research and development for any additional programs. Ferrer
will be responsible for conducting all regulatory and
commercialization activities in connection with
EGRIFTAtm
for the treatment of excess abdominal fat in HIV-infected
patients with lipodystrophy in the territories subject to the
agreement. The Company will be responsible for the manufacture
and supply of
EGRIFTAtm
to Ferrer. The Company has the option to co-promote
EGRIFTAtm
for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy in the territories. Ferrer has the
option to enter into a co-development and commercialization
agreement using tesamorelin relating to any such new
indications. The terms and conditions of such a co-development
and commercialization agreement will be negotiated based on any
additional program chosen for development.
Deferred
Share Unit Plan:
In December 2010, the Company adopted a deferred share unit plan
(Plan) to provide long-term incentive compensation
for its directors and executive officers. Under the Plan,
directors must receive their annual remuneration as a board
member in fully vested deferred share units (DSUs)
until they reach a percentage of their annual remuneration and,
once such percentage is attained, they have the option to elect
to receive part or all of this annual remuneration in DSUs.
Under the plan, executive officers have the option of receiving
all or a portion of their annual bonus in the form of
fully-vested DSUs. The units are only redeemable for cash when a
participant ceases to be an employee or member of the Board of
Directors. The Company manages the risk associated with the
issuance of the DSU by entering into a yearly forward contract
with a third party. As at February 7, 2011, all of the
99,912 DSU outstanding were covered by a prepaid forward
contract.
Stock
Option Plan:
Between December 1, 2010 and February 7, 2011, the
Company granted 250,000 options at an exercise price of $5.65
per share. Also 27,832 options were forfeited and expired at a
weighted exercise average price of $12.06 per share.
Furthermore, 3,000 options were exercised at a weighted exercise
average price of $1.80 per share for a cash consideration of $5.
F-34
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
As stated in note 2 (a), these are the Companys first
consolidated financial statements prepared in accordance with
IFRSs. The Company has applied IFRS 1 and the accounting
policies set out in note 3 in preparing the financial
statements for the year ended November 30, 2010, the
comparative information presented in these financial statements
for the year ended November 30, 2009 and in the opening
IFRS statement of financial position at December 1, 2008
(the Companys date of transition).
In preparing these consolidated financial statements in
accordance with IFRS 1, the Company has applied the mandatory
exceptions and certain of the optional exemptions from full
retrospective application of IFRSs.
The Company elected to apply the following optional exemptions
from full retrospective application:
|
|
|
|
(i)
|
Share-based payment transaction exemption:
|
The Company has elected to apply the share-based payment
exemption. It applied IFRS 2 from December 1, 2008 to those
stock options that were issued after November 7, 2002 but
that had not vested by December 1, 2008. The application of
the exemption is detailed below.
|
|
|
|
(ii)
|
Designation of financial assets and financial liabilities
exemption:
|
The Company elected to re-designate cash from the
held-for-trading
category to loans and receivables.
As required by IFRS 1, estimates made under IFRS at the date of
transition must be consistent with estimates made for the same
date under previous GAAP, unless there is evidence that those
estimates were in error.
In preparing its opening IFRS consolidated statement of
financial position, the Company has adjusted amounts reported
previously in financial statements prepared in accordance with
Canadian GAAP.
F-35
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
An explanation of how the transition from previous Canadian GAAP
to IFRS has affected the Companys financial position,
financial performance and cash flows is set out in the following
tables and accompanying notes.
Reconciliation of equity as at December 1, 2008 and
November 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 1, 2008
|
|
|
NOVEMBER 30, 2009
|
|
|
|
|
|
|
|
|
|
IFRS
|
|
|
IFRS
|
|
|
|
|
|
|
|
|
IFRS
|
|
|
IFRS
|
|
|
|
|
|
|
|
|
|
CANADIAN
|
|
|
ADJUST-
|
|
|
RECLASSI-
|
|
|
|
|
|
CANADIAN
|
|
|
ADJUST-
|
|
|
RECLASSI-
|
|
|
|
|
|
|
NOTE
|
|
|
GAAP
|
|
|
MENTS
|
|
|
FICATIONS
|
|
|
IFRS
|
|
|
GAAP
|
|
|
MENTS
|
|
|
FICATIONS
|
|
|
IFRS
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
133
|
|
|
|
1,519
|
|
|
|
|
|
|
|
|
|
|
|
1,519
|
|
Bonds
|
|
|
|
|
|
|
10,955
|
|
|
|
|
|
|
|
|
|
|
|
10,955
|
|
|
|
10,036
|
|
|
|
|
|
|
|
|
|
|
|
10,036
|
|
Trade and other receivables
|
|
|
|
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
610
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
375
|
|
Tax credits and grants receivable
|
|
|
(a
|
)
|
|
|
1,784
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
1,451
|
|
|
|
1,666
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
1,333
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,225
|
|
|
|
|
|
|
|
|
|
|
|
2,225
|
|
Research supplies
|
|
|
(a
|
)
|
|
|
301
|
|
|
|
|
|
|
|
(301
|
)
|
|
|
|
|
|
|
287
|
|
|
|
|
|
|
|
(287
|
)
|
|
|
|
|
Prepaid expenses
|
|
|
(a
|
)
|
|
|
397
|
|
|
|
|
|
|
|
342
|
|
|
|
739
|
|
|
|
302
|
|
|
|
|
|
|
|
328
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
14,180
|
|
|
|
|
|
|
|
(292
|
)
|
|
|
13,888
|
|
|
|
16,410
|
|
|
|
|
|
|
|
(292
|
)
|
|
|
16,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
|
|
|
|
35,249
|
|
|
|
|
|
|
|
|
|
|
|
35,249
|
|
|
|
51,807
|
|
|
|
|
|
|
|
|
|
|
|
51,807
|
|
Property and equipment
|
|
|
|
|
|
|
1,299
|
|
|
|
|
|
|
|
|
|
|
|
1,299
|
|
|
|
1,229
|
|
|
|
|
|
|
|
|
|
|
|
1,229
|
|
Other assets
|
|
|
(a
|
)
|
|
|
2,817
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
2,776
|
|
|
|
41
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
|
|
|
|
39,365
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
39,324
|
|
|
|
53,077
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
53,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
53,545
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
53,212
|
|
|
|
69,487
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
69,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(a
|
)
|
|
|
7,198
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
6,865
|
|
|
|
5,901
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
5,568
|
|
Current portion of deferred revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,847
|
|
|
|
|
|
|
|
|
|
|
|
6,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
7,198
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
6,865
|
|
|
|
12,748
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
12,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,691
|
|
|
|
|
|
|
|
|
|
|
|
13,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,691
|
|
|
|
|
|
|
|
|
|
|
|
13,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
7,198
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
6,865
|
|
|
|
26,439
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
26,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
|
|
269,219
|
|
|
|
|
|
|
|
|
|
|
|
269,219
|
|
|
|
279,169
|
|
|
|
|
|
|
|
|
|
|
|
279,169
|
|
Contributed surplus
|
|
|
(b
|
)
|
|
|
5,585
|
|
|
|
175
|
|
|
|
|
|
|
|
5,760
|
|
|
|
6,484
|
|
|
|
273
|
|
|
|
|
|
|
|
6,757
|
|
Deficit
|
|
|
(b
|
)
|
|
|
(228,829
|
)
|
|
|
(175
|
)
|
|
|
|
|
|
|
(229,004
|
)
|
|
|
(243,887
|
)
|
|
|
(273
|
)
|
|
|
|
|
|
|
(244,160
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
372
|
|
|
|
1,282
|
|
|
|
|
|
|
|
|
|
|
|
1,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
|
46,347
|
|
|
|
|
|
|
|
|
|
|
|
46,347
|
|
|
|
43,048
|
|
|
|
|
|
|
|
|
|
|
|
43,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
|
|
|
|
53,545
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
53,212
|
|
|
|
69,487
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
69,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Reconciliation of comprehensive income for the year ended
November 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS
|
|
|
IFRS
|
|
|
|
|
|
|
|
|
|
CANADIAN
|
|
|
ADJUST-
|
|
|
RECLASSI-
|
|
|
|
|
|
|
NOTE
|
|
|
GAAP
|
|
|
MENTS
|
|
|
FICATION
|
|
|
IFRS
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milestone payments
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
10,884
|
|
|
|
10,884
|
|
Upfront payments and initial technology access fees
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
6,560
|
|
|
|
6,560
|
|
Royalties and license fees
|
|
|
(c
|
)
|
|
|
17,468
|
|
|
|
|
|
|
|
(17,444
|
)
|
|
|
24
|
|
Interest
|
|
|
(c
|
)
|
|
|
2,252
|
|
|
|
|
|
|
|
(2,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
|
|
19,720
|
|
|
|
|
|
|
|
(2,252
|
)
|
|
|
17,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net of tax credits
|
|
|
(b
|
), (c)
|
|
|
20,431
|
|
|
|
33
|
|
|
|
346
|
|
|
|
20,810
|
|
Selling and market development expenses
|
|
|
(b
|
), (c)
|
|
|
2,583
|
|
|
|
10
|
|
|
|
4,269
|
|
|
|
6,862
|
|
General and administrative expenses
|
|
|
(b
|
), (c)
|
|
|
7,149
|
|
|
|
55
|
|
|
|
(661
|
)
|
|
|
6,543
|
|
Patents
|
|
|
(c
|
)
|
|
|
346
|
|
|
|
|
|
|
|
(346
|
)
|
|
|
|
|
Fees associated with the collaboration and licensing agreement
|
|
|
(c
|
)
|
|
|
4,269
|
|
|
|
|
|
|
|
(4,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
34,778
|
|
|
|
98
|
|
|
|
(661
|
)
|
|
|
34,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results from operating activities
|
|
|
|
|
|
|
(15,058
|
)
|
|
|
(98
|
)
|
|
|
(1,591
|
)
|
|
|
(16,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
2,252
|
|
|
|
2,252
|
|
Finance costs
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
(661
|
)
|
|
|
(661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net finance income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,591
|
|
|
|
1,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
(15,058
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
(15,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of
available-for-sale
financial assets
|
|
|
|
|
|
|
1,039
|
|
|
|
|
|
|
|
|
|
|
|
1,039
|
|
Net change in fair value of
available-for-sale
financial assets transferred to net profit (loss)
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income for the year
|
|
|
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year
|
|
|
|
|
|
|
(14,148
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
(14,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material adjustments to the consolidated statement of cash flows
for 2009:
There are no material differences between the consolidated
statement of cash flows presented under IFRS and the
consolidated statement of cash flows presented under previous
Canadian GAAP.
Notes to the reconciliations:
|
|
|
|
(a)
|
Reclassification in the consolidated statement of financial
position:
|
Certain corresponding figures as at December 1, 2008 and
November 30, 2009 have been reclassified to conform to the
new presentation under IFRS.
|
|
|
|
(b)
|
Share-based compensation:
|
In certain situations, stock options granted vest in instalments
over a specified vesting period. When the only vesting condition
is service from the grant date to the vesting date of each
tranche awarded, then each instalment should be accounted for as
a separate share-based payment arrangement under IFRS,
F-37
THERATECHNOLOGIES
INC.
NOTES TO THE
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
otherwise known as graded vesting. Canadian GAAP permits an
entity the accounting policy choice with respect to graded
vesting awards. Each instalment can be considered as a separate
award, each with a different vesting period, consistent with
IFRS, or the arrangement can be treated as a single award with a
vesting period based on the average vesting period of the
instalments depending on the policy elected.
The Companys policy under Canadian GAAP was to treat
graded vesting awards under the latter method and, as a result,
an adjustment of $175 was required on the application of IFRS 2
at the transition date, and an adjustment of $98 was required
for the restated 2009 comparative balances as shown below:
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 1,
|
|
|
NOVEMBER 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
$
|
|
|
$
|
|
|
Consolidated statement of comprehensive income:
|
|
|
|
|
|
|
|
|
Increase in research and development expenses
|
|
|
|
|
|
|
33
|
|
Increase in selling and market development expenses
|
|
|
|
|
|
|
10
|
|
Increase in general and administrative expenses
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Adjustment to net loss and total comprehensive loss
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
(175
|
)
|
|
|
(273
|
)
|
Increase in contributed surplus
|
|
|
175
|
|
|
|
273
|
|
|
|
|
|
|
(c)
|
Reclassification in the consolidated statement of comprehensive
income:
|
Under IFRS, the Company elected to present expenses using a
classification based on their function and presents net finance
income separately. The effect of these changes is summarized
below:
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
|
2009
|
|
|
|
$
|
|
|
Decrease in interest
|
|
|
(2,252
|
)
|
Increase in finance income
|
|
|
2,252
|
|
Increase in research and development expenses
|
|
|
346
|
|
Decrease in patent fees
|
|
|
(346
|
)
|
Decrease in general and administrative expenses
|
|
|
(661
|
)
|
Increase in finance costs
|
|
|
661
|
|
Increase in selling and market development expenses
|
|
|
4,269
|
|
Decrease in fees associated with the collaboration and licensing
agreement
|
|
|
(4,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in presentation were also made to the revenue caption in
order to conform with the new presentation under IFRS as noted
below:
|
|
|
|
|
|
|
NOVEMBER 30,
|
|
|
|
2009
|
|
|
|
$
|
|
|
Decrease in royalties and license fees
|
|
|
(17,444
|
)
|
Increase in upfront payments and initial technology access fees
|
|
|
6,560
|
|
Increase in milestone payments
|
|
|
10,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
11,000,000 Shares
THERATECHNOLOGIES
INC.
Common Shares
PRELIMINARY
PROSPECTUS
Joint Book-Running Managers
Jefferies
Stifel Nicolaus
Weisel
RBC Capital Markets
BMO Capital Markets
Co-Managers
Desjardins Securities
International Inc
NBF Securities (USA)
Corp
Until ,
2011 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
,
2011
PART II
INFORMATION NOT REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS
Indemnification
Under the Business Corporations Act (Québec) (the Act), except in respect of an action by or
on behalf of the Registrant to procure a judgment in its favor, the Registrant shall indemnify
against all costs, charges and expenses reasonably incurred by its mandatory (which covers
directors and officers) prosecuted by a third person for an act done in the exercise of his duties
and shall pay damages, if any, resulting from that act, unless such mandatory has committed a
grievous offence or a personal offence separable from the exercise of his duties. However, in a
penal or criminal proceeding, the Registrant shall indemnify against all costs, charges and expenses
reasonably incurred by its mandatory if he had reasonable grounds to believe that his conduct was
in conformity with the law. The Registrant may, with the approval of the court, assume the expenses
of its mandatory if, having prosecuted him for an act done in the exercise of his duties, it loses
its case. If the Registrant wins its case only in part, the court may determine the amount of the
expenses it shall assume.
In addition, the By-laws of the Registrant provide in effect for the indemnification by the
Registrant of each director and officer of the Registrant to the fullest extent permitted by
applicable law.
The Registrant has purchased insurance for the benefit of all directors and officers of the
Registrant and its subsidiaries against liability incurred by them in such capacity.
Under agreements which may be entered into by the Registrant, underwriters, dealers, placement
agents and other intermediaries who participate in the distribution of securities may be entitled
to indemnification by the Registrant against certain liabilities, including liabilities under
applicable securities legislation. The underwriters, dealers, placement agents and other
intermediaries with whom the Registrant enters into agreements may be customers of, engage in
transactions with or perform services for the Registrant in the ordinary course of business.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions,
the Registrant has been informed that in the opinion of the U.S. Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable.
II-1
EXHIBITS
|
|
|
Exhibit Number |
|
Description |
|
|
|
3.1*
|
|
Underwriting Agreement between the Registrant and
Jefferies & Company, Inc., as Representative of the
Several Underwriters. |
|
|
|
4.1
|
|
Annual information form of the Registrant dated
February 22, 2011 for the fiscal year ended November
30, 2010. |
|
|
|
4.2
|
|
Audited consolidated statements of financial position
of the Registrant as at November 30, 2010 and 2009 and
December 1, 2008, and the consolidated statements of
comprehensive income, changes in equity and cash flows
for the years ended November 30, 2010 and 2009,
together with the notes thereto and the auditors
report thereon. |
|
|
|
4.3
|
|
Managements discussion and analysis of results and
operations and financial condition for the fiscal year
ended November 30, 2010. |
|
|
|
4.4
|
|
Management proxy circular dated February 23, 2010 in
connection with the Registrants annual and special
meeting of shareholders held on March 25, 2010. |
|
|
|
4.5
|
|
Material change report dated December 16, 2010
announcing the execution of a distribution and
licensing agreement with Sanofi-Aventis for the
commercialization rights to EGRIFTATM
(tesamorelin for injection) in Latin America, Africa
and the Middle East for the treatment of excess
abdominal fat in HIV-infected patients with
lipodystrophy. |
|
|
|
4.6
|
|
Material change report dated February 10, 2011
announcing the execution of a distribution and
licensing agreement with Ferrer for the
commercialization rights to EGRIFTATM
(tesamorelin for injection) in Europe, Russia, South
Korea, Taiwan, Thailand and certain central Asian
countries for the treatment of excess abdominal fat in
HIV-infected patients with lipodystrophy. |
|
|
|
4.7
|
|
Material change report dated
February 22, 2011
announcing a new clinical program for muscle wasting in COPD using
tesamorelin. |
|
|
|
5.1
|
|
Consent of KPMG LLP. |
|
|
|
5.2
|
|
Consent of Fasken Martineau Dumoulin LLP. |
|
|
|
5.3
|
|
Consent of Goodwin Procter LLP. |
|
|
|
6.1
|
|
Power of Attorney (included on the signature pages to
the Registration Statement). |
|
|
|
* |
|
To be filed by amendment. |
II-2
PART III
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
Item 1. Undertaking
The Registrant undertakes to make available, in person or by telephone, representatives to
respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so
by the Commission staff, information relating to the securities registered pursuant to Form F-10 or
to transactions in said securities.
Item 2. Consent to Service of Process
(a) Concurrent with the filing of this Registrant Statement on Form F-10, the Registrant is
filing with the Commission a written irrevocable consent and power of attorney on Form F-X.
(b) Any change to the name or address of the agent for service of the Registrant shall be
communicated promptly to the Commission by amendment to Form F-X referencing the file number of the
relevant registration statement.
III-1
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing on Form F-10 and has
duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Montreal, Province of Québec, Country of Canada, on February 22,
2011.
|
|
|
|
|
|
THERATECHNOLOGIES INC.
|
|
|
By: |
/s/ John-Michel Huss |
|
|
John-Michel Huss |
|
|
President and Chief Executive Officer |
|
|
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints John-Michel Huss and Luc Tanguay and each of them, either of whom
may act without the joinder of the other, the true and lawful attorney-in-fact and agent of the
undersigned, with full power of substitution and resubstitution, to execute in the name, place and
stead of the undersigned, in any and all such capacities, any and all amendments (including
post-effective amendments) to this Registration Statement and registration statements filed
pursuant to Rule 429 under the Securities Act of 1933, as amendment, and all instruments necessary
or in connection therewith, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the United States Securities and Exchange Commission, and hereby grants
to each such attorney-in-fact and agent, each acting alone, full power and authority to do and
perform in the name and on behalf of the undersigned each and every act and thing whatsoever
necessary or advisable to be done, as fully and to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement has been
signed by the following persons in the capacities indicated and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ John-Michel Huss
John-Michel Huss
|
|
President and Chief Executive
Officer and a Director (Principal
Executive Officer)
|
|
February 22, 2011 |
|
|
|
|
|
/s/ Luc Tanguay
Luc Tanguay
|
|
Senior Executive Vice President
and
Chief Financial Officer and a
Director (Principal Financial and
Accounting Officer)
|
|
February 22, 2011 |
|
|
|
|
|
/s/ Paul Pommier
Paul Pommier
|
|
Director
|
|
February 22, 2011 |
|
|
|
|
|
/s/ Gilles Cloutier
Gilles Cloutier
|
|
Director
|
|
February 22, 2011 |
III-2
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ A. Jean de Grandpré
A. Jean de Grandpré
|
|
Director
|
|
February 22, 2011 |
|
|
|
|
|
/s/ Robert G. Goyer
Robert G. Goyer
|
|
Director
|
|
February 22, 2011 |
|
|
|
|
|
/s/ Gérald A. Lacoste
Gérald A. Lacoste
|
|
Director
|
|
February 22, 2011 |
|
|
|
|
|
/s/ Bernard Reculeau
Bernard Reculeau
|
|
Director
|
|
February 22, 2011 |
|
|
|
|
|
/s/ Jean-Denis Talon
Jean-Denis Talon
|
|
Director
|
|
February 22, 2011 |
III-3
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act, the Authorized
Representative certifies that it is the duly authorized United States representative of
Theratechnologies Inc. and has duly caused this Registration Statement to be signed on its behalf
by the undersigned, solely in its capacity as the duly authorized representative of
Theratechnologies Inc. in the United States, in the State of North Carolina, United States of
America on February 22, 2011.
|
|
|
|
|
|
THERATECHNOLOGIES INC.
|
|
|
By: |
/s/ Gilles Cloutier |
|
|
Gilles Cloutier |
|
|
Director |
|
|
III-4
EXHIBIT
INDEX
|
|
|
Exhibit Number |
|
Description |
|
|
|
3.1*
|
|
Underwriting Agreement between the Registrant and
Jefferies & Company, Inc., as Representative of the
Several Underwriters. |
|
|
|
4.1
|
|
Annual information form of the Registrant dated
February 22, 2011 for the fiscal year ended November
30, 2010. |
|
|
|
4.2
|
|
Audited consolidated statements of financial position
of the Registrant as at November 30, 2010 and 2009 and
December 1, 2008, and the consolidated statements of
comprehensive income, changes in equity and cash flows
for the years ended November 30, 2010 and 2009,
together with the notes thereto and the auditors
report thereon. |
|
|
|
4.3
|
|
Managements discussion and analysis of results and
operations and financial condition for the fiscal year
ended November 30, 2010. |
|
|
|
4.4
|
|
Management proxy circular dated February 23, 2010 in
connection with the Registrants annual and special
meeting of shareholders held on March 25, 2010. |
|
|
|
4.5
|
|
Material change report dated December 16, 2010
announcing the execution of a distribution and
licensing agreement with Sanofi-Aventis for the
commercialization rights to EGRIFTATM
(tesamorelin for injection) in Latin America, Africa
and the Middle East for the treatment of excess
abdominal fat in HIV-infected patients with
lipodystrophy. |
|
|
|
4.6
|
|
Material change report dated February 10, 2011
announcing the execution of a distribution and
licensing agreement with Ferrer for the
commercialization rights to EGRIFTATM
(tesamorelin for injection) in Europe, Russia, South
Korea, Taiwan, Thailand and certain central Asian
countries for the treatment of excess abdominal fat in
HIV-infected patients with lipodystrophy. |
|
|
|
4.7
|
|
Material change report dated
February 22, 2011
announcing a new clinical program for muscle wasting in COPD using
tesamorelin. |
|
|
|
5.1
|
|
Consent of KPMG LLP. |
|
|
|
5.2
|
|
Consent of Fasken Martineau Dumoulin LLP |
|
|
|
5.3
|
|
Consent of Goodwin Procter LLP. |
|
|
|
6.1
|
|
Power of Attorney (included on the signature pages to
the Registration Statement). |
|
|
|
* |
|
To be filed by amendment. |
EX-4.1
Exhibit 4.1
ANNUAL INFORMATION FORM
Financial Year Ended November 30, 2010
February 22, 2011
FORWARD-LOOKING STATEMENTS
This Annual Information Form, or AIF, contains forward-looking statements and forward-looking
information within the meaning of applicable securities laws that are based on our managements
belief and assumptions and on information currently available to our management, collectively,
forward-looking statements. In some cases, you can identify forward-looking statements by terms
such as may, will, should, could, would, expect, plan, anticipate, believe,
estimate, project, predict, intend, potential, continue and similar expressions
intended to identify forward-looking statements. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, these statements relate to future
events or our future performance, and involve known and unknown risks, uncertainties and other
factors that may cause our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. Forward-looking statements include, but
are not limited to, statements about:
|
|
|
our ability, and the ability of our commercial partners, to commercialize
EGRIFTATM in the United States and other territories; |
|
|
|
|
whether we will receive regulatory approvals for tesamorelin from regulatory agencies in
territories other than the United States in which we wish to expand the commercialization
of tesamorelin, and the timing and costs of obtaining such regulatory approvals; |
|
|
|
|
our recognition of milestones, royalties and other revenues from our commercial partners
related to future sales of EGRIFTATM; |
|
|
|
|
our plans to conduct a new clinical program for tesamorelin in muscle wasting in chronic
obstructive pulmonary disease, or COPD, including the timing and results of these clinical
programs; |
|
|
|
|
the continuation of our collaborations and other significant agreements with our
existing commercial partners and our ability to establish and maintain additional
development collaborations; |
|
|
|
|
our estimates of the size of the potential markets for EGRIFTATM, tesamorelin
and our other product candidates; |
|
|
|
|
the rate and degree of market acceptance of EGRIFTATM and our other product
candidates; |
|
|
|
|
our success in obtaining, and the timing and amount of, reimbursement for
EGRIFTATM and our other product candidates; |
|
|
|
|
the benefits of tesamorelin and our other product candidates as compared to others; |
|
|
|
|
the success and pricing of other competing drugs or therapies that are or may become
available; |
|
|
|
|
our ability to maintain and establish intellectual property rights in tesamorelin and
our other product candidates; |
|
|
|
|
the manufacturing capacity of third-party manufacturers, including the manufacturer of
tesamorelin in commercial quantities; |
|
|
|
|
our expectations regarding our financial performance, including revenues, expenses,
gross margins, liquidity, capital expenditures and income taxes; and |
|
|
|
|
our need for additional financing and our estimates regarding our capital requirements
and future revenues and profitability. |
Such statements reflect our current views with respect to future events and are subject to certain
risks, uncertainties and assumptions which may cause our actual results, performance or
achievements to be materially different from any future results, performance or achievements
expressed in or implied by the forward-looking statements. Certain assumptions made in preparing
the forward-looking statements include that:
|
|
|
tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy will receive approval in territories other than the United States covered in
our commercialization agreements; |
|
|
|
|
no additional clinical studies will be required to obtain said regulatory approval of
tesamorelin; |
|
|
|
|
EGRIFTATM will be accepted by the marketplace in the United States and will
be on the list of reimbursed drugs by third-party payors; |
|
|
|
|
our relations with third-party suppliers of EGRIFTATM will be conflict-free
and that such third-party suppliers will have the capacity to manufacture and supply
EGRIFTATM to meet market demand and on a timely-basis; |
|
|
|
|
we will obtain positive results from our clinical program for the development of
tesamorelin for muscle wasting in COPD patients; and |
|
|
|
|
our business plan will not be substantially modified. |
Forward-looking statements reflect our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. Given these risks and uncertainties, the
forward-looking events and circumstances discussed in this AIF may not occur, and you should not
place undue reliance on these forward-looking statements. We discuss many of these risks in greater
detail under the heading Risk Factors. Also, these forward-looking statements represent our
estimates and assumptions only as of the date of this AIF. We undertake no obligation and do not
intend to update or revise these forward-looking statements, unless required by law. We qualify all
of the information presented in this AIF, and particularly our forward-looking statements, with
these cautionary statements.
This AIF also contains estimates and other statistical data made by independent parties and by us
relating to market size and growth and other data about our industry and target indications. This
data involves a number of assumptions and limitations, and you are cautioned not to give undue
weight to such estimates. In addition, projections, assumptions and estimates of our future
performance and the future performance of the markets in which we operate are necessarily subject
to a high degree of uncertainty and risk.
BASIS OF PRESENTATION
We
obtained the industry, market and competitive position data in this
AIF from our own internal estimates
and research as well as from industry and general publications and research surveys and studies conducted by third
parties. Certain statistical data and other information regarding the size of our potential markets are based on industry
publications and/or derived from our own internal analysis of such industry publications. While we believe our internal
company research and internal analysis are reliable and the market definitions, methodology and hypotheses we use are
appropriate, such research, analysis, methodology or definitions have not been verified by an independent source.
We cannot and do not provide any assurance as to the accuracy or completeness of such information. Market forecasts,
in particular, are likely to be inaccurate, especially over long periods of time.
In this AIF, the use of EGRIFTATM refers to tesamorelin for the reduction of excess
abdominal fat in HIV-infected patients with lipodystrophy regardless of the trade name used for
such product in any particular territory. EGRIFTATM is the trade name used in the United
States for tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy. EGRIFTATM is our trademark. Other trademarks and service marks appearing
in this AIF are the property of their respective holders.
All monetary amounts set forth in this AIF are expressed in Canadian dollars, except where
otherwise indicated. References to $ and C$ are to Canadian dollars and references to US$ are
to U.S. dollars.
In this AIF, references to Theratechnologies, we, our and us refer to Theratechnologies
Inc. and its subsidiaries, unless the context otherwise states.
All information provided in this AIF is provided as of February 21, 2011, except where otherwise
stated.
TABLE OF CONTENTS
|
|
|
|
|
|
|
ITEM 1 |
|
CORPORATE STRUCTURE |
|
|
6 |
|
|
|
|
|
|
|
|
1.1 |
|
NAME, ADDRESS AND INCORPORATION |
|
|
6 |
|
1.2 |
|
SUBSIDIARIES |
|
|
6 |
|
|
|
|
|
|
|
|
ITEM 2 |
|
OUR BUSINESS |
|
|
7 |
|
|
|
|
|
|
|
|
2.1 |
|
OVERVIEW |
|
|
7 |
|
2.2 |
|
RECENT DEVELOPMENTS |
|
|
8 |
|
2.3 |
|
THREE YEAR HISTORY |
|
|
9 |
|
2.4 |
|
OUR STRATEGY |
|
|
12 |
|
2.5 |
|
OUR PRODUCT AND PRODUCT CANDIDATES |
|
|
12 |
|
2.6 |
|
INTELLECTUAL PROPERTY |
|
|
20 |
|
2.7 |
|
MANUFACTURING |
|
|
23 |
|
2.8 |
|
COMPETITION |
|
|
24 |
|
2.9 |
|
GOVERNMENT REGULATION |
|
|
24 |
|
2.10 |
|
PHARMACEUTICAL PRICING AND REIMBURSEMENT |
|
|
32 |
|
2.11 |
|
EMPLOYEES |
|
|
34 |
|
2.12 |
|
FACILITIES |
|
|
34 |
|
2.13 |
|
ENVIRONMENT |
|
|
35 |
|
|
|
|
|
|
|
|
ITEM 3 |
|
RISK FACTORS |
|
|
36 |
|
|
|
|
|
|
|
|
3.1 |
|
RISKS RELATED TO THE COMMERCIALIZATION OF OUR PRODUCT AND PRODUCT CANDIDATES |
|
|
36 |
|
3.2 |
|
RISKS RELATED TO THE REGULATORY REVIEW PROCESS |
|
|
42 |
|
3.3 |
|
RISKS RELATED TO OUR INTELLECTUAL PROPERTY |
|
|
45 |
|
3.4 |
|
OTHER RISKS RELATED TO OUR BUSINESS |
|
|
47 |
|
3.5 |
|
RISKS RELATED TO OUR COMMON SHARES |
|
|
51 |
|
|
|
|
|
|
|
|
ITEM 4 |
|
DIRECTORS AND EXECUTIVE OFFICERS |
|
|
54 |
|
|
|
|
|
|
|
|
4.1 |
|
DIRECTORS |
|
|
54 |
|
4.2 |
|
AUDIT COMMITTEE |
|
|
57 |
|
4.3 |
|
EXECUTIVE OFFICERS |
|
|
58 |
|
4.4 |
|
DECLARATION OF THE DIRECTORS' AND OFFICERS' ANTECEDENTS |
|
|
61 |
|
4.5 |
|
SECURITIES HELD BY THE DIRECTORS AND EXECUTIVE OFFICERS |
|
|
61 |
|
|
|
|
|
|
|
|
ITEM 5 |
|
INTERESTS OF EXPERTS |
|
|
62 |
|
|
|
|
|
|
|
|
ITEM 6 |
|
SECURITIES OF THE COMPANY |
|
|
63 |
|
|
|
|
|
|
|
|
6.1 |
|
AUTHORIZED SHARE CAPITAL |
|
|
63 |
|
6.2 |
|
DIVIDEND POLICY |
|
|
63 |
|
6.3 |
|
TRANSFER AGENT AND REGISTRAR |
|
|
63 |
|
|
|
|
|
|
|
|
ITEM 7 |
|
MARKET FOR SECURITIES |
|
|
64 |
|
|
|
|
|
|
|
|
7.1 |
|
TRADING PRICE AND VOLUME |
|
|
64 |
|
7.2 |
|
PRIOR SALES |
|
|
64 |
|
|
|
|
|
|
|
|
ITEM 8 |
|
LEGAL PROCEEDINGS |
|
|
65 |
|
|
|
|
|
|
|
|
ITEM 9 |
|
MATERIAL CONTRACTS |
|
|
66 |
|
|
|
|
|
|
|
|
ITEM 10 |
|
ADDITIONAL INFORMATION |
|
|
68 |
|
|
|
|
|
|
|
|
APPENDIX A AUDIT COMMITTEE CHARTER |
|
|
69 |
|
ITEM 1 CORPORATE STRUCTURE
1.1 NAME, ADDRESS AND INCORPORATION
We were incorporated under the name Theratechnologies Inc. on October 19, 1993 under Part IA of the
Companies Act (Québec) (now the Business Corporations Act (Québec)) by Certificate of
Incorporation. We amended our articles on October 20, 1993 by repealing the restrictions applicable
to private companies. On December 6, 1993, we again amended our articles to increase the number of
directors and to modify our share capital. Finally, on March 26, 1997, we further modified our
share capital to consist of an unlimited number of common shares and an unlimited number of
preferred shares. Our common shares are listed on the Toronto Stock Exchange, or TSX, under the
symbol TH. See Item 6.1 for a complete description of our authorized share capital.
Our head office is located at 2310 Alfred-Nobel Boulevard, Montréal, Québec, Canada H4S 2B4. Our
phone number is (514) 336-7800. Our website is www.theratech.com. The information contained on our
website is not part of this AIF.
1.2 SUBSIDIARIES
As of February 21, 2011, Theratechnologies had the following three wholly-owned subsidiaries:
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Theratechnologies Intercontinental Inc., a company incorporated under Part 1A of the
Companies Act (Québec) and governed by the Business Corporations Act (Québec).
Theratechnologies Intercontinental Inc., formerly Theratechnologies ME Inc., controls the
worldwide rights to commercialize EGRIFTATM except in the United States, Europe,
Russia, South Korea, Taiwan, Thailand and certain central Asian countries, and Canada; |
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Theratechnologies Europe Inc., a company incorporated under Part 1A of the Companies Act
(Québec) and governed by the Business Corporations Act (Québec). Theratechnologies Europe
Inc., formerly 9176-5057 Québec Inc., controls the rights to commercialize
EGRIFTATM in Europe, Russia, South Korea, Taiwan, Thailand and certain central
Asian countries; and |
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Pharma-G Inc., a company incorporated under Part 1A of the Companies Act (Québec) and
governed by the Business Corporations Act (Québec). Pharma-G Inc. is no longer an active
subsidiary. |
Theratechnologies
has retained the rights to commercialize EGRIFTATM in the United
States and in Canada.
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ITEM 2 OUR BUSINESS
2.1 OVERVIEW
We are a specialty pharmaceutical company that discovers and develops innovative therapeutic
peptide products with an emphasis on growth-hormone releasing factor, or GRF, peptides. Our
strategy is to leverage our expertise in the field of metabolism and GRF peptides to address
serious health disorders while remaining actively involved in the commercialization of our future
products. Our first product, EGRIFTATM (tesamorelin for injection), was approved by the
United States Food and Drug Administration, or FDA, in November 2010. EGRIFTATM is
currently the only approved therapy for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy.
We estimate that excess abdominal fat in HIV-infected patients affects approximately 29% of
HIV-infected patients treated with antiretroviral therapies and approximately 12% of untreated
patients. In HIV-infected patients, lipodystrophy may be caused by the viral infection itself, the
use of antiretroviral therapy, or both. Lipodystrophy is characterized by abnormalities in the
production and storage of fat, which lead to excess abdominal fat, or lipohypertrophy, and the loss
of fat tissue, or lipoatrophy, generally occurring in the limbs and facial area.
Excess abdominal fat in HIV-infected patients is associated with significant health risks beyond
the mortality risk of the HIV infection itself. These health risks include metabolic disturbances
such as hyperlipidemia, an increase in the amount of fat in the blood (such as triglycerides and
cholesterol), and hyperglycemia, an increase in the amount of sugar in the blood, characterized by
insulin resistance, both of which lead to increased risks of cardiovascular disease and diabetes.
While there is evidence that suggests that lipoatrophy may be reduced with certain newer HIV
therapies, we are not aware of any evidence showing that any currently-marketed HIV therapy reduces
lipohypertrophy or the incidence of lipohypertrophy.
EGRIFTATM is currently marketed exclusively in the United States by EMD Serono Inc., or
EMD Serono, an affiliate of Merck KGaA, Darmstadt, Germany, pursuant to a collaboration and
licensing agreement. We have also recently entered into distribution and licensing agreements for
EGRIFTATM with Sanofi Winthrop Industries S.A., or Sanofi, granting Sanofi the exclusive
commercialization rights in Latin America, Africa and the Middle East and with Ferrer Internacional
S.A., or Ferrer, granting Ferrer the exclusive commercialization rights in Europe, Russia, South
Korea, Taiwan, Thailand and certain central Asian countries. For a description of these agreements,
see Item 2.5. Using data compiled by the United States Center for Disease Control, or CDC, and the
World Health Organization and UNAIDS, or WHO/UNAIDS, we estimate that in 2012 there will be
approximately 190,000 HIV-infected patients treated with antiretroviral therapies with
lipohypertrophy in the United States, 170,000 in Europe, and 180,000 in Latin America, or 540,000
patients in total. We also estimate that in 2012, there will be an additional 47,000 HIV-infected
untreated patients with lipohypertrophy in the United States, 42,000 in Europe, and 28,000 in Latin
America, or an additional 117,000 patients in total.
In January 2011, EMD Serono launched EGRIFTATM in the United States. EMD Serono is
executing a launch program that consists of medical education, advertising, marketing and promotion
through their experienced sales force, and supporting market access through co-pay programs,
reimbursement education and support for payors. We believe EGRIFTATM will achieve a high
degree of physician and payor acceptance, driven by our products safety and efficacy, the lack of
approved alternative therapies for these patients and the prominent medical and social need to
treat HIV/AIDS patients.
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EGRIFTATM is the trade name used for our first marketed product using our most advanced
compound, tesamorelin. Tesamorelin is a GRF analogue that stimulates the synthesis and pulsatile
release of endogenous growth hormone. Tesamorelin was synthesized using our internally-developed
peptide stabilization method. This method increases a proteins resistance to enzymatic
degradation, which prolongs its duration of action and enhances its effectiveness in clinical use.
We believe this compound and future GRF analogues that we are developing can be used in a number of
additional high-value indications. Clinical data have shown tesamorelin to have both lipolytic
(fat-burning) and anabolic (muscle-building) properties. Our initial development of
EGRIFTATM focused on the lipolytic properties of the compound.
Tesamorelins anabolic properties have led us to pursue its development for muscle wasting in COPD
patients as our second indication. COPD is characterized by progressive airflow obstruction due to
chronic bronchitis or emphysema leading in certain cases to muscle wasting, a decrease of muscle
mass and deterioration in functionality. We have completed a Phase 2 trial which demonstrated a
statistically significant increase in lean body mass. Based upon these trial results, we intend to
randomize our first patient in a new Phase 2 clinical study in the second half of 2011. Based on
available market data, we estimate that in 2009, the number of diagnosed COPD patients with muscle
wasting was approximately 3.1 million in the United States, France, Germany, Italy, United Kingdom,
Spain and Japan.
To solidify our leadership position in the field of GRF therapeutics, we have embarked on a program
to discover new generations of GRF analogues. We believe that GRF compounds have the potential to
improve patient outcome in many high-value indications, such as wasting in chronic heart failure
and renal failure, as well as growth deficiency with abdominal obesity. We also believe that we can
improve the route of administration of GRF peptides to make them quicker and easier to use for
patients. Our early-stage pipeline also includes compounds for the treatment of Acute Kidney
Injury, or AKI, and certain cancers.
2.2 RECENT DEVELOPMENTS
Since the end of our most recently completed financial year, we have been engaged in the following
activities:
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COPD indication for EGRIFTATM. On February 22, 2011, we announced a new
clinical program in muscle wasting in COPD using tesamorelin. Tesamorelins anabolic
properties have led us to pursue the development of tesamorelin for muscle wasting in COPD
patients for its second indication. The program will be conducted in stable ambulatory COPD
patients with muscle wasting in the Global Initiative for Chronic Obstructive Lung Disease,
or GOLD, stage II and III severity experiencing decreased functionality in daily
activities. |
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Execution of distribution and licensing agreement for EGRIFTATM for European
market. On February 3, 2011, we announced the execution, through Theratechnologies Europe
Inc., of a distribution and licensing agreement with Ferrer granting it the exclusive
commercialization rights of tesamorelin in Europe, Russia, South Korea, Taiwan, Thailand
and certain central Asian countries for the reduction of excess abdominal fat in
HIV-infected patients with lipodystrophy. For a description of this agreement, see Item
2.5. |
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Execution of distribution and licensing agreement for EGRIFTATM for the Latin
American, African and Middle Eastern Markets. On December 6, 2010, we announced the
execution, through Theratechnologies Intercontinental Inc., of a distribution and licensing
agreement with sanofi-aventis S.A., granting one of its subsidiaries, Sanofi Winthrop
Industries, the exclusive distribution rights to EGRIFTATM in Latin America,
Africa and the Middle East for the reduction |
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of excess abdominal fact in HIV-infected patients with lipodystrophy. For a description of
this agreement, see Item 2.5. |
2.3 THREE YEAR HISTORY
2010
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FDA approval received for EGRIFTATM. On November 11, 2010, we announced that
the FDA approved EGRIFTA as the first and only drug indicated for the reduction of excess
abdominal fat in HIV-infected patients with lipodystrophy (abdominal lipohypertrophy). The
FDA approval triggered a US$25 million milestone payment pursuant to our collaboration and
licensing agreement with EMD Serono. |
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Appointment of new President and Chief Executive Officer. On September 1, 2010, we
announced the appointment of Mr. John-Michel T. Huss as President and Chief Executive
Officer of the Company, following the retirement of Mr. Yves Rosconi, effective November
30, 2010. Mr. Huss assumed his position on December 1, 2010. |
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Execution of research collaboration agreement with UQAM, Gestion Valeo and Transfert
Plus. On November 16, 2010, we entered into a research collaboration agreement with the
Université du Québec à Montréal, or UQAM, Gestion Valeo, L.P., or Gestion Valeo, and
Transfert Plus, L.P, or Transfert Plus, with the goal of discovering short peptide mimics
of melanotransferrin with the hope of developing a novel cancer treatment. For a
description of this agreement, see Melanotransferrin peptides (Anti-cancer compounds) at
Item 2.5. |
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Adoption of shareholder rights plan. On February 10, 2010, we announced that our board
of directors had adopted a shareholder rights plan, effective as of such date. The plan was
later ratified by our shareholders at our annual meeting held on March 23, 2010. The plan
is designed to provide adequate time for the board of directors and the shareholders to
assess an unsolicited takeover bid for Theratechnologies, to provide the board of directors
with sufficient time to explore and develop alternatives for maximizing shareholder value
if a takeover bid is made, and to provide shareholders with an equal opportunity to
participate in a takeover bid and receive full and fair value for their common shares. For
a description of the plan, see Item 9. |
2009
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Advisory Committee reviews NDA for tesamorelin. On November 5, 2009, we announced that
the Endocrinologic and Metabolic Drugs Advisory Committee of the FDA would be reviewing our
New Drug Application, or NDA, for tesamorelin in the reduction of excess abdominal fat in
HIV-infected patients with lipodystrophy. |
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Filing of NDA for tesamorelin. On June 1, 2009, we announced the filing of an NDA with
the FDA for tesamorelin, an analogue of the growth hormone-releasing factor, proposed for
the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy. |
2008
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Closing of transaction with EMD Serono. On December 16, 2008, we announced that we
closed the transaction related to the collaboration and licensing agreement with EMD
Serono. As part of this transaction, we received an upfront payment of US$30 million which
includes a license fee of US$22 million from EMD Serono. In addition, Merck KGaA purchased
US$8 million of our common shares at a price of US$3.67 per share.
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52-week confirmatory Phase 3 clinical trial results for tesamorelin. On December 15,
2008, we announced the 52-week results of our confirmatory Phase 3 clinical trial,
evaluating the long-term safety profile of tesamorelin in patients with HIV-associated
lipodystrophy. The results reported from both the 26-week confirmatory clinical study and
52-week confirmatory clinical study were consistent with the efficacy and safety profile
observed in the first Phase 3 clinical study. This announcement concluded the Phase 3
clinical studies for tesamorelin for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy. |
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Execution of collaboration and licensing agreement with EMD Serono for tesamorelin in
the United States. On October 29, 2008, we announced the execution of a collaboration and
licensing agreement with EMD Serono for the exclusive commercialization rights to
tesamorelin in the United States for the reduction of excess abdominal fat in HIV patients
with lipodystrophy. For a description of this collaboration and licensing agreement, see
Item 2.5. |
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26-week confirmatory Phase 3 clinical trial results for tesamorelin. On June 18, 2008,
we announced our 26-week results of our confirmatory Phase 3 clinical trial, evaluating the
efficacy of tesamorelin in patients with HIV-associated lipodystrophy. The study was
powered to detect an 8% reduction in visceral adipose tissue versus placebo. The study met
its primary endpoint as well as important secondary endpoints confirming the positive
results obtained in our initial Phase 3 study. |
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Execution of strategic agreement with Dr. Grinspoon. On May 15, 2008, we announced our
entering into an agreement with both the MGH and Dr. Grinspoon to explore the use of
tesamorelin in relative growth hormone deficient abdominally obese, or GHDAO, subjects.
MGH, under the direction of Dr. Grinspoon, is the sponsor and is conducting a Phase 2
clinical trial with tesamorelin in subjects who have excess visceral adipose tissue, or
VAT, with a moderate growth hormone deficiency and who are abdominally obese. We accepted
to provide tesamorelin for this study and the MGH will retain the rights to the results
generated by this study, and we obtained an exclusive worldwide license to commercialize
any results. Dr. Grinspoon completed subject enrolment in December 2010. |
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Initiation of process to explore strategic options. On January 29, 2008, we announced
that our board of directors initiated a process to explore strategic options available to
the Company to further enhance shareholder value. |
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US patent for tesamorelin issued. On January 8, 2008, we announced that the United
States Patent and Trademark Office, or USPTO, issued Patent Number 7,316,997 entitled GH
Secretagogues and Uses Thereof to Theratechnologies. This patent covers methods of
treatment of HIV-associated lipodystrophy using tesamorelin. The granting of this patent
extended the patent term protection of tesamorelin in HIV-associated lipodystrophy for
eight additional years, until 2023. |
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Phase 3 first clinical trial results for tesamorelin. On December 5, 2007, we announced
that the results of our first Phase 3 clinical trial using tesamorelin were published in
the December 6, 2007 New England Journal of Medicine (www.nejm.org). The study, entitled
Metabolic Effects of a Growth Hormone-Releasing Factor in Patients with HIV, outlines, in
detail, the 26-week data of the trial. Top-line results of this Phase 3 trial were
initially disclosed in December 2006. |
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Preclinical work for AKI. We conducted some preclinical work on a molecule known as
THG213.29 with the intent of pursuing a clinical program in AKI. Through our research and
development, we discovered a new bifunctional peptide that appears to have favourable
properties in the treatment of AKI in animal models of AKI. During our 2008 fiscal year, we |
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replaced THG213.29 with the new bifunctional peptide TH0673 in the event we decide to
develop a clinical program for AKI. |
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2.4 OUR STRATEGY
Our goal is to leverage our expertise in the field of metabolism and GRF peptides to become a
leading specialty pharmaceutical company with the necessary infrastructure to take innovative
therapeutic products from research and development to full commercialization in worldwide markets.
Key elements of this strategy include:
Maximize the global commercial potential of EGRIFTATM
In order to maximize the commercial potential of EGRIFTATM we have entered into
licensing agreements with EMD Serono, Sanofi and Ferrer for different territories around the world.
We intend to continue to support our commercial partners to ensure the successful commercialization
of EGRIFTATM in their respective territories. This will include regulatory support,
manufacture and supply of EGRIFTATM, and potential co-promotion.
We have developed a new presentation of EGRIFTATM which is quicker and easier to use
than its current presentation. We are also developing a new and more concentrated formulation of
tesamorelin. Compared to our current formulation, this new formulation requires a smaller volume of
injection and is expected to be stable at room temperature. In addition, this new formulation could
potentially be used with a new delivery device such as a pen, to facilitate patient
self-administration. We expect the new presentation and the new formulation will have a positive
impact on our manufacturing capacity and will significantly reduce our unit costs.
Develop tesamorelin for muscle wasting in COPD
We will be conducting a new clinical program in muscle wasting in COPD. We have demonstrated in a
first Phase 2 clinical trial that tesamorelin has increased muscle mass in COPD patients. We
believe tesamorelin could improve patients functionality in daily activities and address a
significant unmet need in a large and potentially lucrative market.
Solidify our position as a leader in the field of novel GRF products
We will leverage our expertise in peptide discovery, drug development and regulatory affairs to
continue our development of new peptides, primarily GRF peptides, in order to expand our portfolio
of product candidates and solidify our position as a leader in this field.
Be actively involved in the commercialization of our products
We intend to retain commercial rights to our future products for indications and territories where
we believe we can effectively market them. We may also co-promote EGRIFTATM in certain
territories and tesamorelin in other indications.
Pursue external growth opportunities
In addition to developing products internally, we will opportunistically pursue in-licensing
arrangements or acquisitions of complementary businesses, compounds or products.
We will also identify and evaluate commercial growth opportunities that may include collaborations
with drug delivery companies.
2.5 OUR PRODUCT AND PRODUCT CANDIDATES
The following table provides an overview of our product and product candidates and their current
stages of development:
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EGRIFTATM
Our Lead Product
EGRIFTATM induces the release of growth hormone which causes a reduction in excess
abdominal fat (lipohypertrophy) in HIV-infected patients without reducing or interfering with
subcutaneous fat, and, as such, has no clinically significant effect on undesired loss of
subcutaneous fat (lipoatrophy).
EGRIFTATM is currently available in the United States as a once-daily two unit dose (two
vials, each containing 1 mg of tesamorelin) of sterilized lyophilized powder to be reconstituted
with sterile water for injection. To administer EGRIFTATM, 1 ml is retrieved from each
vial into one syringe to prepare a single 2 ml patient self-administered subcutaneous injection.
EGRIFTATM is injected under the skin into the abdomen once a day.
For the purposes of FDA approval, EGRIFTATM was evaluated in two clinical trials
involving 816 HIV-infected adult men and women with lipodystrophy and excess abdominal fat. In both
studies, patients treated daily with EGRIFTATM experienced greater reductions in
abdominal fat as measured by CT scan and greater improvements in belly appearance distress,
compared with patients receiving another injectable solution (placebo). Once the treatment was
terminated, the patients condition reversed to its status prior to the beginning of the treatment.
The most commonly reported adverse effects in the studies included reactions due to the release of
endogenous hormone, such as joint pain (arthralgia), pain in the extremities, swelling in the lower
limbs and muscle pain (myalgia), injection site reactions such as skin redness (erythema), itching
(pruritis) and pain and clinically manageable changes in blood sugar control. Our clinical trials
did not seek to measure any potential cardiovascular benefits of EGRIFTATM on
cardiovascular events.
In connection with its approval, the FDA has required the following three post-approval
commitments:
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to develop a single vial presentation of the existing formulation of
EGRIFTATM. We have developed a new presentation of EGRIFTATM which
is quicker and easier to use than its current presentation. In the new presentation,
EGRIFTATM will be available as a single unit dose (one vial containing 2 mg of
tesamorelin) of sterile, lyophilized powder to be reconstituted with sterile water for
injection. The FDA requires that this new presentation be available by November 2013 and
we expect it to be commercially available before that date. The development of the new
presentation is complete and the dossier is ready for regulatory submission.
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to conduct a long-term observational safety study using EGRIFTATM. The
purpose of the long-term observational study required by the FDA is to evaluate the safety
of long-term administration of EGRIFTATM. |
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to conduct a Phase 4 clinical trial using EGRIFTATM. The primary purpose of
the Phase 4 clinical trial is to assess whether EGRIFTATM increases the
incidence or progression of diabetic retinopathy in diabetic HIV-infected patients with
lipodystrophy and excess abdominal fat. |
The FDA requires that the proposed protocols for the long-term observational safety study and Phase
4 clinical trial be submitted by the second quarter of 2011. Under the terms of our collaboration
and licensing agreement, EMD Serono is responsible for finalizing and obtaining approval of such
protocols. We will continue to support EMD Serono in developing and finalizing such protocols.
Lipodystrophy
Lipodystrophy is characterized by abnormalities in the production and storage of fat. It has two
components: lipohypertrophy, abnormal and excessive fat accumulation, and lipoatrophy, the
noticeable, localized loss of fat tissue under the skin. In patients with lipohypertrophy, fat
accumulation occurs mostly around the waist and may also occur in other regions, including breast
tissue and in dorsocervical tissues in the neck, resulting in a buffalo hump. Excess fat also
appears as lipomas, or benign tumors composed of fat cells. In patients with lipoatrophy, the loss
of fat tissue generally occurs in the limbs and facial area.
Excess abdominal fat in HIV-infected patients is associated with significant health risks beyond
the mortality risk of the HIV infection itself. These health risks include metabolic disturbances
such as hyperlipidemia, an increase in the amount of fat in the blood (such as triglycerides and
cholesterol), and hyperglycemia, an increase in the amount of sugar in the blood, characterized by
insulin resistance, both of which lead to increased risks for cardiovascular disease and diabetes.
In HIV-infected patients, lipodystrophy may be caused by the viral infection itself, the use of
antiretroviral therapy, or both. While there is evidence that suggests that lipoatrophy may be
reduced with certain newer HIV therapies, we are not aware of any evidence showing that any
currently-marketed HIV therapy reduces lipohypertrophy or the incidence of lipohypertrophy. Recent
data suggest that different pathophysiological mechanisms are involved in the development of
lipohypertrophy and lipoatrophy. The most common statistically significant independent risk factors
identified for lipohypertrophy are duration of antiretroviral therapy, markers of disease severity
and protease inhibitor use. Other factors include age, genetics, and gender.
Market Opportunity
Based on our analysis of 20 independent medical studies published from 2000 to 2004, we estimate
that excess abdominal fat in HIV-infected patients affects approximately 29% of HIV-infected
patients treated with antiretroviral therapies. According to a separate 2003 independent medical
study, we estimate that an additional 12% of untreated HIV-infected patients are also affected by
excess abdominal fat.
Based on the above-mentioned data, we have identified the following potential markets for
EGRIFTATM.
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United States. The United States market represents the largest commercial opportunity
for EGRIFTATM. We estimate the prevalence of HIV/AIDS in the United States will
rise to 1.3 million people in 2012. Of this amount, approximately 650,000 people will be
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HIV/AIDS and, of those patients treated, approximately 190,000 will suffer
from excess abdominal fat. In addition, approximately 47,000 untreated patients will
suffer from excess abdominal fat. |
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Europe. We estimate the prevalence of HIV/AIDS in Europe will rise to 1.4 million
people in 2012. Of this amount, approximately 590,000 people will be treated for HIV/AIDS
and, of those patients treated, approximately 170,000 will suffer from excess abdominal
fat. In addition, approximately 42,000 untreated patients will suffer from excess
abdominal fat. |
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Latin America. We estimate the prevalence of HIV/AIDS in Latin America will rise to 2.2
million people in 2012. Of this amount, approximately 630,000 people will be treated for
HIV/AIDS and, of those patients treated, approximately 180,000 will suffer from excess
abdominal fat. This number is proportionately lower than the other territories due to a
lower percentage of diagnosed and treated patients. With approximately 60,000 treated
patients who will suffer from excess abdominal fat, Brazil offers the largest market in
Latin America for EGRIFTATM. In addition, approximately 28,000 untreated
patients will suffer from excess abdominal fat. |
We estimate that the total number of patients diagnosed with and treated for HIV/AIDS who will
suffer from excess abdominal fat in our primary target markets will be 540,000 in 2012. We estimate
that an additional 117,000 untreated patients may develop lipohypertrophy in such markets.
The foregoing information is based on historical data from the CDC for the United States, and
WHO/UNAIDS for Europe and Latin America. We used the historical growth rates derived from that data
to estimate the prevalence of HIV/AIDS in 2012.
EGRIFTATM Commercialization Activities
We are working closely with EMD Serono to support the commercialization of EGRIFTATM. We
are also working closely with Sanofi and Ferrer to obtain regulatory approval for and the
subsequent commercialization of EGRIFTATM. Each of our commercial partners were chosen
due to their commercial and regulatory capabilities in their respective territories.
EMD Serono Agreement United States
On October 28, 2008, we entered into a collaboration and licensing agreement granting EMD Serono
the exclusive commercialization rights to EGRIFTATM for the reduction of excess
abdominal fat in HIV-infected patients with lipodystrophy in the United States.
Under the terms of the agreement, EMD Serono has the exclusive right to conduct
EGRIFTATM commercialization activities in the United States. We are responsible for the
manufacturing and supply of EGRIFTATM and for the development of a new formulation. The
agreement also entitles us to conduct additional clinical programs to develop tesamorelin for
potential additional indications. EMD Serono has the option to commercialize products resulting
from such additional clinical programs in the United States. If EMD Serono exercises this option,
it will pay half of the development and regulatory costs incurred and to be incurred by us in
connection with such additional clinical programs. If EMD Serono decides not to exercise its
option, we have the right to commercialize tesamorelin for such indications on our own or with
third parties. We also have the option to co-promote any product resulting from such clinical
programs under terms and conditions to be agreed with EMD Serono. This agreement extends until the
expiration of the last valid claim based on a patent right (including patent applications)
controlled by us in the United States covering EGRIFTATM or any other product based on
an additional indication for tesamorelin that EMD Serono has elected to commercialize under the
agreement.
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We may receive up to US$215 million in upfront and milestone payments in addition to royalties
and revenues from the sale of EGRIFTATM to EMD Serono. To date, we have received US$65
million which includes an upfront payment and regulatory milestone payments of US$57 million and an
equity investment of US$8 million. Future milestone payments will be made based on the achievement
of certain sales milestones. We will also be entitled to receive royalties at an increasing rate
based on achieving specified levels of annual net sales of EGRIFTATM in the United
States.
We made our first delivery of EGRIFTATM to EMD Serono on December 13, 2010. In January
2011, EMD Serono launched EGRIFTATM in the United States. EMD Serono is executing a
launch program that consists of increasing disease awareness through medical education to doctors,
patient advocacy and advertising, marketing and promotion through their experienced sales force,
and supporting market access through patient support, co-pay programs, reimbursement education and
support for payors.
EMD Serono is responsible for establishing the sale price of EGRIFTATM in the United
States. The wholesale acquisition cost has been set at US$23,900 per patient per year. We expect to
receive our first royalty payments in the second quarter of 2011.
Sanofi Agreement Latin America, Africa and the Middle East
On December 6, 2010, we entered into a distribution and licensing agreement granting Sanofi, a
subsidiary of Sanofi-aventis S.A., the exclusive commercialization rights to EGRIFTATM
for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in Latin
America, Africa and the Middle East.
Under the terms of the agreement, we will sell EGRIFTATM to Sanofi at a transfer price
equal to the higher of a percentage of Sanofis net selling price and a predetermined floor price.
Sanofi will be responsible for conducting all regulatory and commercialization activities for
EGRIFTATM for the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy in the territories subject to the agreement. We will be responsible for the
manufacture and supply of EGRIFTATM to Sanofi. We have retained all development rights
to EGRIFTATM for other indications and will be responsible for conducting development
activities for any additional potential indications. We also granted Sanofi an option to
commercialize tesamorelin for other indications in the territories mentioned above. If such option
is not exercised, or is declined, by Sanofi, we may commercialize tesamorelin for such indications
on our own or with a third party. The initial term of this agreement extends until December 2020.
Ferrer Agreement Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian
countries
On February 3, 2011, we entered into a distribution and licensing agreement granting Ferrer the
exclusive commercialization rights to EGRIFTATM for the reduction of excess abdominal
fat in HIV-infected patients with lipodystrophy in Europe, Russia, South Korea, Taiwan, Thailand
and certain central Asian countries.
Under the terms of the agreement, we will sell EGRIFTATM to Ferrer at a transfer price
equal to the higher of a percentage of Ferrers net selling price and a predetermined floor price.
Ferrer will be responsible for conducting all regulatory and commercialization activities in
connection with EGRIFTATM for the reduction of excess abdominal fat in HIV-
infected
patients with lipodystrophy in the territories subject to the agreement. We will be responsible for
the manufacture and supply of EGRIFTATM to Ferrer. We have retained all development
rights to EGRIFTATM for other indications and will be responsible for conducting
development activities for any additional potential indications.
We have the option to co-promote EGRIFTATM for the reduction of excess abdominal fat in
HIV-
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infected patients with lipodystrophy in the territories. Ferrer has the option to enter into a
co-development and commercialization agreement using tesamorelin for potential additional
indications. The terms and conditions of such a co-development and commercialization agreement will
be negotiated based on any additional program chosen for development. This agreement extends until
the later of the expiration of the last valid claim based on a patent right (including patent
applications) controlled by us covering a product licensed under the agreement or ten years from
the date of the first commercial sale of EGRIFTATM for each country covered by the
agreement.
Unpartnered Territories
We have retained full commercial rights for EGRIFTATM in certain territories, including
Canada. In territories where we do not currently have commercial partners, we may commercialize
EGRIFTATM directly or in collaboration with commercial partners.
Tesamorelin Our Lead Compound
Tesamorelin is a stabilized 44 amino acid human GRF analogue, which was synthesized in our
laboratories in 1995 using our long-acting peptide method. Although natural peptides have
significant therapeutic potential, they are subject to enzymatic degradation which severely limits
their effectiveness in clinical use. Our long-acting peptide method is a peptide stabilization
process which increases the target proteins resistance to enzymatic degradation, while maintaining
its natural specificity. This usually results in a more stable and efficient compound, which can
thus prolong its duration of action. Tesamorelin induces growth hormone secretion in a natural and
pulsatile way. The clinical results obtained to date using tesamorelin suggest a therapeutic
potential in both anabolic and lipolytic indications. EGRIFTATM has demonstrated the
ability to significantly reduce visceral adipose tissue, increase muscle mass and reduce waist
circumference.
Mechanism of action
In vitro, tesamorelin binds and stimulates human GRF receptors with similar potency as the
endogenous GRF. GRF is a hypothalamic peptide that acts on the pituitary somatotroph cells to
stimulate the synthesis and pulsatile release of endogenous growth hormone, which is both anabolic
and lipolytic. Growth hormone exerts its effects by interacting with specific receptors on a
variety of target cells, including chondrocytes, osteoblasts, myocytes, hepatocytes, and
adipocytes, resulting in a host of pharmacodynamic effects. Some, but not all these effects, are
primarily mediated by insulin-like growth factor one, IGF-1, produced in the liver and in
peripheral tissues.
The effects of recombinant human growth hormone, or rhGH, and tesamorelin have been the subject of
several clinical trials in the area of HIV-associated lipodystrophy. Based on these clinical
trials, the safety profiles of rhGH and tesamorelin appear to be very different. The natural
synthesis of growth hormone is regulated by a feedback mechanism preventing its overproduction.
Tesamorelin induces optimal activity of the somatotrope function and retains the natural rhythm
(pulsatility) of the physiological secretion of growth hormone without interfering with the
feedback mechanism mentioned above. With the exogenous administration of rhGH, the feedback
mechanisms are short-circuited, which gives rise to higher levels of growth hormone. The side
effects associated with rhGH include nerve, muscle or joint pain, swelling due to fluid retention
(edema), carpal tunnel syndrome, numbness and tingling of skin and increased risk of diabetes.
These side effects are particularly frequent among older people. In addition, rhGH can cause
hyperglycemia which makes it contraindicated for patients with diabetes or pre-diabetic conditions.
Muscle Wasting in COPD New Indication for Tesamorelin
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We have selected COPD as our second clinical program with tesamorelin. We chose to consider muscle
wasting in COPD patients with decreased functioning in daily activities for a clinical program
based on the anabolic properties of tesamorelin. The goal of the program is to show an improvement
in functionality in daily activities in COPD patients with loss of muscle mass.
We completed a three-month Phase 2 clinical study involving 109 stable ambulatory COPD patients.
Patients were randomized to receive either 1 mg or 2 mg doses of tesamorelin, or a placebo each
day. Patients treated using 1 mg or 2 mg doses of tesamorelin experienced a statistically
significant increase in lean body mass compared with patients receiving a placebo. In addition to
the increase in lean body mass, such patients experienced improvements in three functional measures
associated with tesamorelin, particularly for the 2 mg group. The three functional measures were:
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Respiratory symptoms, as assessed by St. Georges Respiratory Questionnaire; |
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Leg discomfort, as assessed by the Borg Scale following an exercise endurance test; and |
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Breathing discomfort, as assessed by the Borg Scale following an exercise endurance
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COPD |
COPD is characterized by progressive airflow obstruction due to chronic bronchitis or emphysema,
two commonly co-existing lung diseases. COPD results in a limitation of the flow of air to and from
the lungs resulting in a shortness of breath. In contrast to asthma, the limitation of airflow is
not easily reversible and usually gets progressively worse over time.
Many COPD patients are affected by a systemic manifestation which may lead to muscle wasting.
Muscle wasting (cachexia or involuntary weight loss), a decrease or thinning of the muscle mass, is
associated with several abnormalities, including impaired exercise capacity and functioning and
decreased muscle strength. Muscle wasting is an independent predictor of a COPD patients
functional deterioration and mortality, and it is a common symptom in patients with moderate to
severe COPD. The importance of improving not only muscle strength, but other functional parameters
and quality of life is well recognized in order to improve the well being of patients with COPD and
decreased functionality. We are not aware of any treatment for muscle wasting in COPD approved by
any regulatory authorities.
Market opportunity
According to independent research, 26 million adults aged 40 or over were diagnosed with COPD in
the United States, France, Germany, Italy, the United Kingdom, Spain and Japan in 2009. The
prevalence of COPD increases with age and is much higher in adult males. The diagnosed population
is expected to increase at a compound annual growth rate of 2.5%.
Treatment varies across countries and region, however 17.9 million patients were receiving
treatment for COPD management in 2009 in the United States, France, Germany, Italy, the United
Kingdom, Spain and Japan. COPD can be classified using four levels of severity, from mild to very
severe (stages I to IV) using the GOLD classification. Our program will focus primarily on COPD
patients in GOLD stage II and III. Based on available market data, we estimate that in 2009, the
number of diagnosed COPD patients in GOLD stage II and III suffering from a muscle wasting
condition, with a body mass index of under 25, was approximately 3.1 million in those markets.
Clinical development plan
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Tesamorelins anabolic properties have led us to pursue its development for muscle wasting in COPD
patients as our second indication. This clinical development program will be conducted in stable
ambulatory COPD patients, GOLD stage II and III, with muscle wasting experiencing decreased
functionality in daily activities. It will include three studies:
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One Phase 2 study: This study will be a randomized, placebo controlled study in
approximately 200 COPD patients with muscle wasting. Patients will be randomized to receive
either one of two different dosages of tesamorelin or placebo each day for six months. We
intend to randomize our first patient in this Phase 2 clinical study in the second half of
2011. The Phase 2 study will evaluate the safety and efficacy of using tesamorelin in COPD
patients, GOLD stage II and III, with muscle wasting. The primary endpoint will be an
increase in lean body mass. Other efficacy endpoints will be measured, such as a six minute
walking distance test, exercise endurance time, and quality of life (daily activities).
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Two Phase 3 studies: If the Phase 2 study is successful, we anticipate there will be two
12-month Phase 3 studies (one pivotal and one confirmatory) to be conducted in parallel. We
expect a total of approximately 1,200 patients will be included in this program. |
We currently believe that the clinical trials will last approximately four years and that the
program will cost between approximately $55 and $65 million. A significant portion of the costs
will be borne by our commercial partners if they elect to exercise their option to commercialize
under their respective agreements.
Other Product Candidates
Novel Growth Hormone-Releasing Factor Analogues
We are working on several novel analogues of GRF that have improved chemical stability compared to
tesamorelin. To date, we have synthesized over 80 different compounds. We believe that GRF
compounds have the potential to improve patient outcome in many high-value indications. We also
believe we can improve the route of administration of GRF peptides to make them quicker and easier
to use for patients.
Compounds for Acute Kidney Injury
AKI is the acute deterioration of kidney function leading to increased urea waste products and
electrolyte imbalance in blood. AKI is common among hospitalized patients and complicates the
management of patients in intensive care units. According to a 2008 medical publication, AKI
affected 3% to 7% of patients admitted to hospital and approximately 25% to 30% of patients in the
intensive care unit within days of major surgery. The incidence of AKI was approximately 600,000 to
900,000 patients in the United States per year. Despite hospitalization and renal replacement, the
mortality rate is 50% to 60% for dialyzed patients. We believe that hemodialysis is the only
approved treatment for post-surgical AKI.
We have identified AKI as a potential clinical program for internal development. We have developed
novel peptides specifically tailored for the prevention or treatment of AKI. One of these peptides,
TH0673, is a peptide that is currently in preclinical development. We have tested TH0673 in animal
models of AKI and have found that it increases creatinine clearance, improves excretion of
nitrogenous waste compounds and limits kidney damage. We expect to have additional preclinical
results in AKI in the first half of 2011.
Other Discovery Activities Melanotransferrin Peptides (Anti-cancer compounds)
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In November 2010, we entered into a discovery and collaboration agreement with the UQAM, Gestion
Valeo and Transfert Plus in connection with research led by Dr. Richard Béliveau seeking to
discover short peptide mimics of melanotransferrin for the development of a new cancer treatment.
Melanotransferrin is related to the transferrin family of proteins and is expressed normally in
melanocytes, but also in several cancer cells. Dr. Béliveaus research has demonstrated that
soluble melanotransferrin reduces cell migration, invasion and angiogenesis, which are hallmarks of
tumorigenesis and metastasis. We have identified small peptides from the melanotransferrin protein
which could replicate the functions of the full length protein. Currently, we are optimizing the
peptides for better pharmaceutical properties so that the optimized peptides can be tested in
animal models of cancer and tumor angiogenesis.
2.6 INTELLECTUAL PROPERTY
Our Current Patent Portfolio
Our current patent portfolio is comprised of patents and patent applications for the following
compounds:
Tesamorelin
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In the United States, we own a patent covering the
composition of matter (tesamorelin),
which is scheduled to expire in 2015. We have applied for a patent term extension
requesting an extension of five years to this patent term. If our request for patent term
extension for the entire five year term is granted, the patent protection for tesamorelin
in the United States would be extended until 2020. In addition, we own an issued United
States patent relating to the use of tesamorelin in the treatment of HIV-associated
lipodystrophy, which is scheduled to expire in 2023. Because tesamorelin qualifies as a new
chemical entity, we benefit from data protection for a five year period for
EGRIFTATM ending November 2015. See Regulatory Exclusivity. |
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In Europe, tesamorelin is covered by granted patents scheduled to expire in 2016. In the
event of receipt of marketing approval from the European Medicines Agency, or EMA, we
intend to apply for supplementary protection certificates, or SPCs, in certain countries
which, if granted, could extend the patents covering tesamorelin in the countries where
SPCs are approved until 2021. We have also filed two patent
applications relating to the use of tesamorelin in the treatment of
HIV-associated lipodystrophy where, if such patents were granted,
they would be scheduled to expire in 2023 and 2025, respectively. As discussed below, the first time a new product is approved
in Europe, the regulation provides for a 10 year exclusivity period. Assuming approval in
2012, we would benefit from protection until 2022. See Regulatory Exclusivity. |
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We have obtained a patent covering the composition of matter (tesamorelin) in Brazil
that expires in 2019. |
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We have filed patent applications for the therapeutic indication of muscle wasting in
COPD in several countries, including the United States, where, if such patents were
granted, they would be scheduled to expire in 2024, with the exception of a
recently granted patent in the United States, which benefits
from a patent term adjustment extending its term to 2027. |
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We have filed patent applications in several countries,
including the United States, for
the new formulation of tesamorelin where, if such patents were granted, they would be
scheduled to expire in 2028. |
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We have filed United States and international Patent
Cooperation Treaty applications,
relating to combination therapies of tesamorelin with certain drugs indicated for the
treatment of HIV which, if patents issued from these applications were granted, would be scheduled to expire in
2030. |
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Novel GRF Peptides |
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We have recently filed a United States provisional patent application relating to new
GRF analogues. Patents claiming priority from this application may be pursued and, if such patents
were granted, they would be scheduled to expire in 2032. |
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AKI |
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We have filed patent applications in several countries, including the United States,
relating to our peptide TH0673 and related peptides, and their use in the treatment
of AKI, where, if such patents were granted, they would be scheduled to expire in 2028. |
Our Trademarks & Other Intellectual Property
EGRIFTATM is the trademark used for tesamorelin for the reduction of excess abdominal
fat in HIV-infected patients with lipodystrophy. Trademark registration in the United States
necessitates a prior commercial use in the territory in order to be granted. We are in the process
of filing the declaration of use to obtain trademark registration.
We have obtained registration for EGRIFTATM in Europe, Japan, Australia, Norway,
Switzerland, Mexico and Lebanon and have filed trademark applications for this trademark in other
countries. The use of the trademark in each jurisdiction generally requires the approval of the
regulatory authorities in such jurisdictions.
Other trademarks related to tesamorelin have been filed as part of our business strategy. We have
also reserved certain domain names in order to support future activities.
Our Policy on Intellectual Property
Our intellectual property practice is to keep all information relating to proprietary compounds,
inventions, improvements, trade secrets, know-how and continuing technological innovation
confidential and, where practicable, file patent and trademark applications. In particular, as part
of our intellectual property protection practice, we:
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perform surveillance of third party patents and patent applications in order to identify
any third party patent or third party patent application which, if granted, could be
infringed by our activities; |
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where practicable, file patent applications for any new and patentable invention,
development or improvement in the United States and in other countries; |
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prosecute all pending patent applications in conformity with applicable patent laws and
in a manner that efficiently covers our activities; |
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file trademark applications in countries of interest for our trademarks; |
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register domain names in countries of interest; and |
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maintain our intellectual property rights by paying such government fees
as may be necessary to ensure such rights remain in force. |
Regulatory Exclusivity
The regulatory regimes of the United States and Europe may provide market exclusivity for a
pharmaceutical product. Data protection and patent term extension provide a patent holder with
additional protection against third parties who may wish to commercialize a product similar to an
approved product.
Data Protection
In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984, also
known as the Hatch-Waxman Act, awards, in certain circumstances, non-patent marketing exclusivities
to pioneer drug manufacturers. The Hatch-Waxman Act provides five years of non-patent marketing
exclusivity within the United States to an applicant who gains approval of a New Drug Application,
or NDA, for a new chemical entity, a drug for which the FDA has not previously approved any other
new drug with the same active moiety, which is the molecule or ion responsible for the action of
the drug. This marketing exclusivity prevents the FDA from approving, in certain circumstances, any
abbreviated new drug application for a generic drug or any 505(b)(2) NDA. See Government
Regulation United States FDA Process below.
In Europe, when a product based on a new compound is approved, the EMA grants a 10 year exclusivity
period beginning on the date of such approval. When the same compound is approved for a second
indication within the first eight years of this 10 year period, the exclusivity period is extended
by one year, providing a total exclusivity period of 11 years for the compound.
Patent Term Extension
In the United States, the Hatch-Waxman Act permits patent term extension for one patent per
approved drug of up to five years for patent term lost during product development and the FDA
regulatory review process. However, patent term extension cannot extend the remaining patent term
beyond a total of 14 years from the products approval date. The patent term extension period is
generally one-half the time between the effective date of an Investigational New Drug Application,
or IND, and the submission date of an NDA plus the time between the submission date of an NDA and
the NDA. We have applied for a patent term extension with respect to tesamorelin.
In the European Union, SPCs for medicinal products are governed by Regulation 469/2009 with effect
from May 2009. An SPC has the effect of extending the term of a patent relating to protection of a
particular medicinal product by compensating the patentee for some lost patent protection caused by
the length of time taken to obtain marketing authorisation for the product in question. An SPC is a
national right, available in member states of the European Union by application to the national
patent office of each state for which a certificate is desired. The SPC must be based on a patent
but since an SPC is only granted in respect of a very specific active ingredient in a product, it
is generally of rather more limited scope than the patent on which it is based. Typically, the term
of the SPC is equal to the period which has elapsed between filing of the patent application and
grant of the first European Union marketing authorisation less five years. The term of the SPC may
not, generally, exceed five years. However, some European Union legislation regarding pediatric
medicines provides for a six-month extension of the basic SPC term in certain circumstances. The
SPC takes effect on expiry of the basic patent. In each country for which SPC protection is sought,
a separate SPC application must be filed within six months of the grant of the first marketing
authorisation in that country for the active ingredient(s) in question.
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2.7 MANUFACTURING
We do not own or operate commercial scale manufacturing facilities for the production of our
product or any of our product candidates, nor do we have plans to develop our own manufacturing
operations in the foreseeable future. We currently depend on third-party contract manufacturers for
all of our required raw materials, drug substance and finished product for clinical trials and
commercial sale.
We are responsible for the manufacture and supply of tesamorelin to ensure the commercialization of
EGRIFTATM under our agreements with EMD Serono, Sanofi and Ferrer. As part of our
agreement with EMD Serono, we are required to maintain certain levels of inventory. In order to
fulfill these contractual obligations, we have negotiated and entered into various third-party
supply agreements.
Bachem
We have an agreement with Bachem Inc., an American subsidiary of Swiss-based Bachem AG, providing
for the manufacturing and supply of the active pharmaceutical ingredient of tesamorelin for
clinical programs and EGRIFTATM for commercial sale in the United States.
Draxis
We have an agreement with Draxis Pharma, a division of Draxis Specialty Pharmaceuticals, Inc., or
Draxis, providing for the manufacture and supply of the finished form of tesamorelin for clinical
programs and EGRIFTATM for commercial sale. Under our agreement, Draxis must fill vials
with tesamorelin, lyophilize it, label and package those vials and deliver them to locations in
accordance with our instructions.
We have identified and initiated discussions with possible secondary suppliers of these products.
We believe that there are alternate sources of supply for these products that will be able to
satisfy our needs and will be able to receive FDA qualification. We expect our new presentation as
well as our new formulation of tesamorelin will significantly increase our production capacity for
EGRIFTATM due to the smaller quantity of vials, shorter manufacturing process times and
increased batch sizes.
We have also entered into the following manufacturing agreements as a result of our undertakings
under the distribution and licensing agreement with EMD Serono wherein we agreed to supply the
injection tool kits for EGRIFTATM namely:
Becton Dickinson
On November 6, 2009, we entered into a supply agreement with Becton Dickinson Canada Inc., or
Becton Dickinson. Under this agreement, Becton Dickinson is responsible for supplying us with
syringes and hypodermic needles which are provided with EGRIFTATM in the United States.
Hospira
On March 26, 2009, we entered into a development and supply agreement with Hospira Worldwide, Inc.,
or Hospira. Under this agreement, Hospira is responsible for manufacturing and supplying us with
sterile water for injection, filled and finished in plastic vials, in connection with the sale of
EGRIFTATM in the United States.
ABAR
On January 5, 2010, we entered into a supply agreement with Gruppo Cartotecnico ABAR Litofarma
S.R.L., or ABAR, an Italian company, in order to ensure the commercial supply of pharmaceutical
mass market folding boxes for the sale of EGRIFTATM in the United States.
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2.8 COMPETITION
The pharmaceutical industry is characterized by intense competition and rapid innovation. Our
potential competitors include large pharmaceutical and biotechnology companies, specialty
pharmaceutical and generic drug companies, academic institutions, government agencies and research
institutions, many of whom have greater financial, technical and human resources than us. We
believe the key competitive factors that will affect the development and commercial success of
EGRIFTATM and our product candidates are efficacy, safety and tolerability profile,
reliability, product acceptance by physicians and other healthcare providers, convenience of
dosing, price and reimbursement. Also, the development of new treatment methods for the indications
we are targeting could render our drugs non-competitive or obsolete. We are not aware of other GRF
products being commercialized or in development for the reduction of excess abdominal fat in
HIV-infected patients with lipodystrophy although we may face indirect competition for
EGRIFTATM from other drugs that may be prescribed by physicians. The use of these other
drugs for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy has not
been approved by the FDA nor any other regulatory authority.
We believe that competition in the area of muscle wasting in COPD patients is limited. We are aware
of one other compound which has completed a Phase 1 clinical study in COPD muscle wasting (GOLD
stage I and II). We may face indirect competition from other drugs such as anabolic steroids,
testosterone and growth hormone that may be prescribed by physicians. However, these drugs have not
been approved by the FDA for muscle wasting in COPD.
2.9 GOVERNMENT REGULATION
Overview
The research, development, manufacture and marketing of pharmaceutical products are governed by
various governmental authorities throughout the world to ensure efficacy and safety.
Governmental authorities in the United States at the federal, state and local level, and other
countries, extensively regulate, among other things, the research, development, testing,
manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion,
advertising, distribution, marketing, export and import of products, such as EGRIFTATM
and other product candidates that we are developing. The process of obtaining regulatory approvals
and the subsequent compliance with appropriate federal, state, local and foreign statutes and
regulations require the expenditure of substantial time and financial resources. Failure to comply
with the applicable United States or foreign requirements at any time during the product
development process, approval process or after approval, may subject an applicant to administrative
or judicial sanctions. Sanctions could include refusal to approve pending applications, withdrawal
of an approval, a clinical hold, warning letters, product recalls, product seizures, total or
partial suspension of production or distribution injunctions, fines, refusals of government
contracts, restitution, disgorgement or civil or criminal penalties.
On November 10, 2010, the FDA approved EGRIFTATM as the first approved treatment for
excess abdominal fat in HIV-infected patients with lipodystrophy. Our other product candidates must
receive regulatory approval from the FDA or other relevant foreign regulatory authorities before
they may legally be marketed in the United States or other countries.
In Canada, these activities are governed by the provisions of the Food and Drugs Act and its
regulations, which is enforced by the Therapeutic Products Directorate of the Health Products and
Food Branch of Health Canada. We have not yet applied to market EGRIFTATM in Canada.
United States FDA Process
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Before new pharmaceutical products may be sold in the United States, clinical trials of the product
candidates must be conducted and the results submitted to the FDA for approval. The drug approval
process requires, among other things, a demonstration of product safety and efficacy. Generally, a
demonstration of safety and efficacy includes preclinical testing and clinical trials of product
candidates. The testing, manufacture and marketing of pharmaceutical products in the United States
requires the approval of the FDA. The FDA enforces laws and regulations which apply to preclinical
testing, clinical trials, and manufacture of these products. The drug approval process in the
United States is described in brief below.
Pre-Clinical Testing: Before testing of any compounds with potential therapeutic value in human
subjects may begin in the United States, stringent government requirements for pre-clinical data
must be satisfied. Pre-clinical testing includes laboratory evaluations of product pharmacology and
toxicity in animal studies of the drug candidates. In parallel, the chemistry of the drug
candidates must be elucidated and their manufacturing, including formulation and stability, clearly
defined and controlled.
Investigational New Drug Application: Among other things, pre-clinical testing results obtained
from animal studies and in vitro studies, are submitted to the FDA as part of an IND application
and are reviewed by the FDA prior to the commencement of human clinical trials. An IND sponsor must
also include a protocol detailing, among other things, the objectives of the initial clinical
trial, the parameters to be used in monitoring safety and the effectiveness criteria to be
evaluated if the initial clinical trial lends itself to an efficacy evaluation. Some preclinical
testing may continue even after the IND is submitted. Unless the FDA objects to an IND (referred to
as a clinical hold), the IND becomes effective 30 days following its receipt by the FDA. Once
trials have commenced, the FDA may stop the trials at any time by placing them on clinical hold
because of safety concerns or noncompliance. If the FDA issues a clinical hold, the IND sponsor and
the FDA must resolve any outstanding concerns before the clinical study can begin. Accordingly, we
cannot be sure that submission of a IND will result in the FDA allowing clinical trials to begin or
that, once began, issues will not arise that suspend or terminate such trials.
Clinical Trials: Clinical trials involve the administration of the drug to healthy human volunteers
or to patients under the supervision of a qualified investigator pursuant to an FDA-approved
protocol. Each clinical trial must be conducted under the auspices of an Institutional Review
Board, or IRB, that considers, among other things, ethical factors, the safety of human subjects
and approves the patient informed consent, which must be agreed to by all participants prior to
participation in the clinical trial. Once an IND is in effect, each new clinical protocol and any
amendments to the protocol must be submitted to the FDA for review, and to the IRBs for approval.
Protocols detail, among other things, the objectives of the clinical trial, dosing procedures,
subject selection and exclusion criteria, and the parameters to be used to monitor subject safety.
Human clinical trials are typically conducted in three sequential phases, although the phases may
overlap with one another.
All phases of clinical trials must be conducted in conformance with Good Clinical Practices, or
GCP, which are ethical and scientific quality standards for conducting, recording, and reporting
clinical trials to assure that the rights, safety, and well-being of trial participants are
protected, and the FDAs regulations for the protection of human subjects.
Phase 1 Clinical Trials: Phase 1 clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or, more rarely, to a group of
select patients with the targeted disease or disorder. The goal of Phase 1 clinical trials is
typically to test for safety, dose tolerance, absorption, bio-distribution, metabolism, excretion
and clinical pharmacology and, if possible, to gain early evidence regarding efficacy.
Phase 2 Clinical Trials: Phase 2 clinical trials involve a small sample of the actual intended
patient population and seek to assess the efficacy of the drug for specific targeted indications,
to determine
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dose response and the optimal dose range and to gather additional information relating to safety
and potential adverse effects.
Phase 3 Clinical Trials: Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase 3 clinical trials are initiated
to establish further clinical safety and efficacy of the investigational drug in a broader sample
of the patient population with the target disease or disorder at geographically dispersed study
sites in order to determine the overall risk-benefit ratio of the drug and to provide an adequate
basis for regulatory approval and product labeling.
New Drug Application: All data obtained from a comprehensive development program including research
and product development, manufacturing, pre-clinical and clinical trials and related information
are submitted in an NDA to the FDA. In addition to reports of the trials conducted under the IND,
the NDA includes information pertaining to the preparation of the new drug, chemistry manufacturing
and controls, or CMC, analytical methods, details of the manufacture of finished products and
proposed product packaging and labeling. The submission of an application is no guarantee that the
FDA will find the application complete and accept it for filing. The FDA may refuse to file the
application and request additional information rather than accept the application for filing, in
which case, the application must be resubmitted with the supplemental information. The re-submitted
application is also subject to review before the FDA accepts it for filing. Once an application is
accepted for filing, an FDA review team medical doctors, chemists, statisticians,
microbiologists, pharmacologists, and other experts evaluates whether the studies the sponsor
submitted show that the drug is safe and effective for its proposed use and whether the applicants
manufacturing complies with Good Manufacturing Practices, or GMP, to assure and preserve the
products identity, strength, quality and purity. As part of the approval process, the FDA will
inspect the facility or facilities where the product is manufactured. The FDA review process may be
extended by FDA requests for additional information or clarification. In some cases, the FDA may
decide to expedite the review of new drugs that are intended to treat serious or life threatening
conditions and demonstrate the potential to address unmet medical needs.
As part of its review, the FDA may refer the application to an advisory committee for evaluation
and a recommendation as to whether the application should be approved. The FDA is not bound by the
recommendation of an advisory committee, but it generally follows such recommendations.
Under legislation enacted in 2007, the FDA may determine that a risk evaluation and mitigation
strategy, or REMS, is necessary to ensure that the benefits of a new product outweigh its risks. If
required, a REMS may include various elements, such as publication of a medication guide, patient
package insert, a communication plan to educate healthcare providers of the drugs risks,
limitations on who may prescribe or dispense the drug, or other measures that the FDA deems
necessary to assure the safe use of the drug.
In reviewing an NDA, the FDA may grant marketing approval, request additional information or deny
the application if it determines the application does not provide an adequate basis for approval.
The FDA may require larger or additional clinical trials, leading to unanticipated delay or
expense. Even if such additional information and data are submitted, the FDA may ultimately decide
that the NDA does not satisfy the criteria for approval. Data from clinical trials may be subject
to different interpretation, and the FDA may interpret data differently than the applicant. The
receipt of regulatory approval often takes a number of years, involving the expenditure of
substantial resources and depends on a number of factors, including the severity of the disease in
question, the availability of alternative treatments and the risks and benefits demonstrated in
clinical trials. The FDA may require, as a condition of approval, restricted distribution and use,
enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events,
pre-approval of promotional materials, or restrictions on direct-to-consumer advertising or
commitments to conduct additional research post-approval. The FDA will
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issue a complete response letter if the agency decides not to approve the NDA in its present form.
The complete response letter usually describes all of the specific deficiencies in the NDA
identified by the FDA. The deficiencies may be minor, for example, requiring labeling changes, or
major, for example, requiring additional clinical studies. If a complete response letter is issued,
the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the
letter, or withdraw the application. In addition, changes in FDA approval policies or requirements
may occur, or new regulations may be promulgated, which may result in delay or failure to receive
FDA approval.
Changes to an approved product, such as adding a new indication, making certain manufacturing
changes, or changing manufacturers or suppliers of certain ingredients or components requires
review and approval of the FDA.
Under the Hatch-Waxman Act, the U.S. Congress created an abbreviated FDA review process for generic
versions of pioneer (brand name) drug products. The Hatch-Waxman Act requires NDA applicants and
NDA holders to provide certain information about patents related to the drug for listing in the
FDAs publication, Approved Drug Products with Therapeutic Equivalence Evaluations, commonly
known as the Orange Book. The Hatch-Waxman Act allows for, under certain circumstances, an
abbreviated NDA, or ANDA, where an applicant seeks to determine that its proposed product is
biologically equivalent to the reference drug. ANDA applicants do not have to conduct extensive
clinical trials to prove the safety or efficacy of the drug product; rather, they are required to
conduct less rigorous bioequivalence testing. Drugs approved in this way are commonly referred to
as generic equivalents to the listed drug, are listed as such by the FDA, and can often be
substituted by pharmacists under prescriptions written for the original listed drug. In addition,
in certain cases, an application for marketing approval may include information regarding safety
and efficacy of a proposed drug that comes from studies not conducted by or for the applicant and
for which the applicant has not obtained a specific right to reference those studies.
Such applications, known as a 505(b)(2) NDA, are permitted for new drug products that incorporate
previously approved active ingredients, even if the proposed new drug incorporates an approved
active ingredient in a novel formulation or for a new indication. Section 505(b)(2) also permits
the FDA to rely for such approvals on literature or on a finding by the FDA of safety and/or
efficacy for a previously approved drug product. In addition, a 505(b)(2) NDA for changes to a
previously approved drug product may rely on the FDAs finding of safety and efficacy of the
previously approved product coupled with new clinical information needed by FDA to support the
change. FDA approval of the NDA or ANDA is required before marketing of the product may begin in
the United States.
The Pediatric Research Equity Act, or PREA, requires NDAs (or NDA supplements) for a new active
ingredient, new indication, new dosage form, new dosing regimen, or new route of administration to
contain data assessing the safety and efficacy for the claimed indication in all relevant pediatric
subpopulations. Data to support dosing and administration also must be provided for each pediatric
subpopulation for which the drug is safe and effective. FDA may grant deferrals for the submission
of data, or full or partial waivers from the PREA requirements. Unless otherwise required by
regulation, PREA does not apply to any drug for an indication for which orphan designation, as
described below, has been granted.
If a product receives regulatory approval, the approval may be significantly limited to specific
diseases and dosages or the indications for use may otherwise be limited, which could restrict the
commercial value of the product. Further, the FDA may require that certain contraindications,
warnings or precautions be included in the product labeling. In addition, the FDA may
require Phase 4 testing which involves clinical trials designed to further assess a drug safety and
effectiveness and may require testing and surveillance programs to monitor the safety of approved
products that have been commercialized.
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Post-Approval Studies and Registries: Post-approval studies, also referred to as Phase 4 clinical
trials are studies that are conducted after a product has been approved. These trials can be
conducted for a number of purposes, including to collect long-term safety information or to collect
additional data about a specific population. As part of a product approval, the FDA may require
that certain Phase 4 studies be conducted post-approval, and in these cases these Phase 4 studies
are called post-marketing commitments.
Adverse Event Reporting: Regulatory authorities track information on side effects and adverse
events reported during clinical studies and after marketing approval. Non-compliance with FDA
safety reporting requirements may result in FDA regulatory action that may include civil action or
criminal penalties. Side effects or adverse events that are reported during clinical trials can
delay, impede or prevent marketing approval. Similarly, adverse events that are reported after
marketing approval can result in additional limitations being placed on the products use and,
potentially, withdrawal or suspension of the product from the market. Furthermore, in September
2007 the Food and Drug Administration Amendments Act of 2007 was enacted, which provides the FDA
with expanded authority over drug products after approval. This legislation enhances the FDAs
authority with respect to post-marketing safety surveillance including, among other things, the
authority to require additional post-approval studies or clinical trials and mandate label changes
as a result of safety findings, including the development and implementation of a REMS.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare
disease or condition, which is a disease or condition that affects fewer than 200,000 individuals
in the United States, or more than 200,000 individuals in the United States and for which there is
no reasonable expectation that the cost of developing and making a drug available in the United
States for this type of disease or condition will be recovered from sales in the United States of
the drug. Orphan product designation must be requested before submitting an NDA. After the FDA
grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use
are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in, or
shorten the duration of the regulatory review and approval process.
If a drug that has orphan designation subsequently receives the first FDA approval for the disease
or condition for which it has such designation, the product is entitled to orphan drug exclusivity,
which means that the FDA may not approve any other applications to market the same drug for the
same indication for seven years, except in limited circumstances, such as a showing of clinical
superiority to the product with orphan exclusivity. Competitors, however, may receive approval of
different drugs for the indication for which the orphan product has exclusivity or may obtain
approval for the same drug but for a different indication for which the orphan product has
exclusivity. Orphan product exclusivity also could block the approval of one of our product
candidates for seven years if a competitor obtains approval of the same drug or if our product
candidate is determined to be contained within the competitors product for the same indication or
disease. If a drug designated as an orphan drug receives marketing approval for an indication
broader than what is designated, it may not be entitled to orphan product exclusivity. Orphan drug
status in the European Union has similar but not identical benefits in the European Union.
Expedited Development and Review Programs
The FDA has a fast track program that is intended to expedite or facilitate the process for
reviewing new drugs that meet certain criteria. Specifically, new drugs are eligible for fast track
designation if they are intended to treat a serious or life-threatening condition and demonstrate
the potential to address unmet medical needs for the condition. Fast track designation applies to
the combination of the product and the specific indication for which it is being studied. Unique to
a fast track product, the
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FDA may consider for review sections of the NDA on a rolling basis before the complete application
is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the
FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the
sponsor pays any required user fees upon submission of the first section of the NDA.
Any product submitted to the FDA for market, including a fast track program, may also be eligible
for other types of FDA programs intended to expedite development and review, such as priority
review and accelerated approval. Any product is eligible for priority review if it has the
potential to provide safe and effective therapy where no satisfactory alternative therapy exists or
a significant improvement in the treatment, diagnosis or prevention of a disease compared to
marketed products. The FDA will attempt to direct additional resources to the evaluation of an
application for a new drug designated for priority review in an effort to facilitate the review.
Additionally, a product may be eligible for accelerated approval. Drug products studied for their
safety and effectiveness in treating serious or life-threatening illnesses and that provide
meaningful therapeutic benefit over existing treatments may receive accelerated approval, which
means that they may be approved on the basis of adequate and well-controlled clinical studies
establishing that the product has an effect on a surrogate endpoint that is reasonably likely to
predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival
or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug
receiving accelerated approval perform adequate and well-controlled post-marketing clinical
studies. In addition, the FDA currently requires as a condition for accelerated approval
pre-approval of promotional materials, which could adversely impact the timing of the commercial
launch of the product. Fast track designation, priority review and accelerated approval do not
change the standards for approval but may expedite the development or approval process.
Non-U.S. Regulation
In addition to regulations in the United States, we will be subject to a variety of regulations
governing clinical studies and commercial sales and distribution of our products in other
jurisdictions around the world. Whether or not we obtain FDA approval for a product, we must obtain
approvals from the comparable regulatory authorities of foreign countries before we can commence
clinical studies or marketing of the product in those countries. The approval process varies from
country to country and the time may be longer or shorter than that required for FDA approval. The
requirements governing the conduct of clinical studies, product licensing, pricing and
reimbursement vary greatly from country to country. In some international markets, additional
clinical trials may be required prior to the filing or approval of marketing applications within
the country.
In the European Union, medicinal products must be authorized either through the decentralized
procedure by the competent authorities of the European Union Member States, or through the
centralized procedure by the European Commission following an opinion by the EMA. The centralized
procedure provides for the grant of a single marketing authorization that is valid for all European
Union member states. The centralized procedure is compulsory for medicines produced by certain
biotechnological processes, products with a new active substance indicated for the treatment of
certain diseases such as neurodegenerative disorder or diabetes and products designated as orphan
medicinal products, and optional for those products which are highly innovative or for which a
centralized process is in the interest of patients. The decentralized approval procedure provides
for approval by one or more concerned member states based on an assessment of an application
performed by one member state, known as the reference member state. Under the decentralized
approval procedure, an applicant submits an application, or dossier, and related materials (draft
summary of product characteristics, draft labeling and package leaflet) to the reference member
state and concerned member states. The reference member state prepares a draft assessment and
drafts of the related materials within 120 days after receipt of a valid application. Within 90
days of receiving the reference member states assessment report, each concerned member state must
decide whether to approve the assessment report and related materials. If a member state objects to
approval of the
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assessment report and related materials on the grounds of potential serious risk to public health,
the disputed points may eventually be referred to the European Commission, whose decision is
binding on all member states. In many European Union countries, pricing and reimbursement
negotiations must also take place before the product is sold in their national market between the
company marketing the product and the competent national authorities.
In order to obtain approval for commercializing new drugs in Canada, we must satisfy many
regulatory conditions. We must complete preclinical studies in order to file a Clinical Trial
Application, or CTA, in Canada. We then receive different clearance authorizations to proceed with
Phase 1 clinical trials, which can then lead to Phase 2 and Phase 3 clinical trials. Once all three
phases of trials are completed, we file a registration file named a New Drug Submission, or NDS, in
Canada. If the NDS demonstrates that the product was developed in accordance with the regulatory
authorities rules, regulations and guidelines and demonstrates favourable safety, efficacy and
receives a risk/benefit analysis, then the regulatory authorities issue a notice of compliance,
which allows us to market the product.
Good Manufacturing Practices
The FDA, the EMA, the competent authorities of the European Union Member States and other foreign
regulatory agencies regulate and inspect equipment, facilities, and processes used in the
manufacturing of pharmaceutical and biologic products prior to approving a product. Among the
conditions for NDA or equivalent foreign approval is the requirement that the prospective
manufacturers quality control and manufacturing procedures adhere to the FDAs or other competent
authorities current GMP. Before approval of an NDA or equivalent foreign approval, the FDA or
other competent authority may perform a pre-approval inspection of a manufacturing facility to
determine its compliance with GMP and other rules and regulations. In complying with GMP,
manufacturers must continue to expend time, money and effort in the area of production and quality
control to ensure full technical compliance. Similarly, NDA or equivalent foreign approval may be
delayed or denied due to GMP non-compliance or other issues at contract sites or suppliers included
in the NDA or equivalent foreign approval, and the correction of these shortcomings may be beyond
our control. Facilities are also subjected to the requirements of other government bodies, such as
the U.S. Occupational Safety & Health Administration and the U.S. Environmental Protection Agency.
If, after receiving clearance from regulatory agencies or competent authorities, a company makes
certain changes in manufacturing equipment, location, or process, additional regulatory review and
approval may be required. Our third-party suppliers must adhere to GMP and product-specific
regulations enforced by the FDA or other competent authorities following product approval. The FDA,
the European Union and other national competent authorities and regulatory agencies also conduct
regular, periodic visits to re-inspect equipment, facilities and processes following the initial
approval of a product. If, as a result of these inspections, it is determined that our suppliers
equipment, facilities or processes do not comply with applicable regulations and conditions of
product approval, regulatory agencies may seek civil, criminal or administrative sanctions and/or
remedies against them, including the suspension of manufacturing operations.
Good Clinical Practices
The FDA, the EMA and other competent authorities promulgate regulations and standards, commonly
referred to as GCP, for designing, conducting, monitoring, auditing and reporting the results of
clinical trials to ensure that the data and results are accurate and that the trial participants
are adequately protected. The FDA, the European Union and other foreign national competent
authorities and regulatory agencies enforce GCP through periodic inspections of trial sponsors,
principal investigators and trial sites. We rely on third-party service providers to conduct our
clinical trials. If our study sites fail to comply with applicable GCP, the clinical data generated
in our clinical trials may be deemed
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unreliable and relevant regulatory agencies may require us to perform additional clinical trials
before approving our marketing applications.
Good Laboratory Practices
The FDA and other regulatory authorities promulgate regulations and standards, commonly referred to
as Good Laboratory Practices, or GLP, for the conduct of non-clinical, commonly referred to as
preclinical, non-human studies to provide a framework within which laboratory studies are
planned, performed, monitored, recorded, reported and archived. Compliance with GLP is intended to
assure regulatory authorities of the quality and integrity of the results obtained during the
preclinical studies. Before we may test our product candidates on humans in clinical trials, we
must first conduct preclinical testing, including animal studies, in accordance with GLP. The FDA
or other regulatory authorities may inspect the testing facilities where our pre-clinical studies
are conducted. The results of preclinical studies in the United States, Europe or other countries,
not conducted in accordance with GLP, might be inadmissible in support of an NDA in the United
States, or comparable applications in other countries.
United States Sales and Marketing
Our commercial partner, EMD Serono, will be subject to various United States regulations relating
to the sales and marketing of EGRIFTATM in the United States. The FDA regulates all
advertising and promotion activities for products under its jurisdiction both prior to and after
approval. A company can make only those claims relating to safety and efficacy that are approved by
the FDA. Drugs may be promoted only for the approved indications and in accordance with the
provisions of the approved label. The FDA actively enforces the laws and regulations prohibiting
the promotion of off-label uses, and a company that is found to have improperly promoted off-label
uses may be subject to significant sanctions. The FDA does not regulate the practice of medicine by
physicians in their choice of treatment, but FDA regulations do impose stringent restrictions on
manufacturers communications regarding off-label uses. Failure to comply with applicable FDA
requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective
advertising, and the full range of civil and criminal penalties available to the FDA.
Marketing of EGRIFTATM within the United States is also subject to various federal and
state laws pertaining to health care fraud and abuse, including anti-kickback laws and false
claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit,
offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business,
including the purchase or prescription of a particular drug. Due to the breadth of the statutory
provisions and the absence of guidance in the form of regulations and very few court decisions
addressing industry practices, it is possible that our commercial partners practices might be
challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly
and willingly presenting, or causing to be presented for payment to third-party payors (including
Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent.
In addition, several states require that companies implement compliance programs or comply with
industry ethics codes, adopt spending limits, and report to state governments any gifts,
compensation, and other remuneration provided to physicians. The recently enacted health care
reform legislation will require record-keeping and disclosure to the federal government of payments
to physicians commencing in 2012. Any activities relating to the sale and marketing of our products
may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable
by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the
possibility of exclusion from federal health care programs (including Medicare and Medicaid). If
the government were to allege or convict our commercial partner of violating these laws, our
business could be harmed. In addition, there is ability for private individuals to bring similar
actions.
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Further, there are an increasing number of state laws that require manufacturers to make reports to
states on pricing and marketing information. Our activities could be subject to challenge for the
reasons discussed above and due to the broad scope of these laws and the increasing attention being
given to them by law enforcement authorities.
2.10 PHARMACEUTICAL PRICING AND REIMBURSEMENT
In the United States and in other countries, sales of EGRIFTATM and our other product
candidates will depend in part on the availability of reimbursement from third-party payors.
Third-party payors include government health administrative authorities (such as the Centers for
Medicare & Medicaid Services in the United States), managed care providers, private health insurers
and other organizations. We believe EGRIFTATM will achieve a high degree of physician
and payor acceptance, driven by our products safety and efficacy, the lack of approved alternative
therapies for these patients and the prominent medical and social need to treat HIV/AIDS patients.
However, these third-party payors are increasingly challenging the price and examining the
cost-effectiveness of medical products and services. In addition, significant uncertainty exists as
to the reimbursement status of newly approved healthcare product candidates. We, or our commercial
partners, may need to conduct expensive pharmacoeconomic studies in order to demonstrate the
cost-effectiveness of EGRIFTATM or our other product candidates. EGRIFTATM or
our other product candidates may not be considered cost-effective. It is time consuming and
expensive for us, and our commercial partners, to seek reimbursement from third-party payors.
Reimbursement may not be available or sufficient to allow us to sell EGRIFTATM or our
other product candidates on a competitive and profitable basis.
United States
Pursuant to our agreement with EMD Serono, they are responsible for identifying and obtaining
possible reimbursements under such government programs in the United States. The U.S. Congress and
state legislatures from time to time propose and adopt initiatives aimed at cost containment, which
could impact our ability to sell our products profitably. For example, in March 2010, President
Obama signed into law the Patient Protection and Affordable Care Act, and the associated
reconciliation bill, which we refer to collectively as the Health Care Reform Law, a sweeping law
intended to broaden access to health insurance, reduce or constrain the growth of healthcare
spending, enhance remedies against fraud and abuse, add new transparency requirements for
healthcare and health insurance industries, impose new taxes and fees on the health industry and
impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law
revises the definition of average manufacturer price for reporting purposes, which could increase
the amount of Medicaid drug rebates to states once the provision is effective. Further, beginning
in 2011, the new law imposes a significant annual fee on companies that manufacture or import
certain branded prescription drug products and biologic agents. Substantial new provisions
affecting compliance also have been enacted, which may require us, or EMD Serono, to modify our
business practices with healthcare practitioners. We will not know the full effects of the Health
Care Reform Law until applicable federal and state agencies issue regulations or guidance under the
new law. Although it is too early to determine the effect of the Health Care Reform Law, the new
law appears likely to continue the pressure on pharmaceutical pricing, especially under the
Medicare program, and also may increase our regulatory burdens and operating costs.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, imposed new
requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries, and
included a major expansion of the prescription drug benefit under a new Medicare Part D. Medicare
Part D went into effect on January 1, 2006. Under Part D, Medicare beneficiaries may enroll in
prescription drug plans offered by private entities which will provide coverage of outpatient
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prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and
prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and
B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to
pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that
identifies which drugs it will cover and at what tier or level. However, Part D prescription drug
formularies must include drugs within each therapeutic category and class of covered Part D drugs,
though not necessarily all the drugs in each category or class. Any formulary used by a Part D
prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee.
It is not clear what effect the MMA will have on the prices paid for EGRIFTATM and our
other product candidates. Some studies indicate that Part D lowered the average price and increased
the utilization of prescription drugs by Medicare beneficiaries. Government payment for some of the
costs of prescription drugs may increase demand for products for which we receive marketing
approval. However, any negotiated prices for our products covered by a Part D prescription drug
plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA
applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare
coverage policy and payment limitations in setting their own payment rates. Any reduction in
payment that results from the MMA may result in a similar reduction in payments from
non-governmental payors.
There are also laws that govern a companys eligibility to participate in Medicare and Medicaid
reimbursements. For example, a company may be debarred from participation if it is found to have
violated federal anti-kickback laws, which could have a significant effect on a companys ability
to operate its business.
The cost of pharmaceuticals continues to generate substantial governmental and third-party payor
interest. We expect that the pharmaceutical industry will experience pricing pressures due to the
trend toward managed healthcare, the increasing influence of managed care organizations, and
additional legislative proposals. Indeed, we expect that there will continue to be a number of U.S.
federal and state proposals to implement governmental pricing controls and limit the growth of
healthcare costs, including the cost of prescription drugs. At the present time, Medicare is
prohibited from negotiating directly with pharmaceutical companies for drugs. However, the U.S.
Congress is considering passing legislation that would lift the ban on federal negotiations. While
we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of
such proposals could harm our business, financial condition and results of operations.
Some third-party payors also require pre-approval of coverage for new or innovative drug therapies
before they will reimburse healthcare providers that use such therapies. While we cannot predict
whether any proposed cost-containment measures will be adopted or otherwise implemented in the
future, the announcement or adoption of these proposals could have a material adverse effect on our
ability to obtain adequate prices for our product candidates and operate profitably.
Europe and other countries covered by our agreements
Outside of the United States, sales of EGRIFTATM and our other product candidates will
depend in part on the availability and level of reimbursement from third-party payers. Third-party
payers can be public or private or a combination of both. In order to obtain public reimbursement,
prescription drugs are often evaluated by specialized bodies in a country. This process is in many
cases independent of marketing approval and the time to carry out the evaluation differs in each
country, often extending beyond the initial regulatory approval date of the drug.
The requirements and aspects considered during the assessment of a new prescription drug are not
necessarily the same in each country and are given different weight depending on the countries
attitudes towards providing public healthcare and the governments willingness to pay for these new
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drugs. We or our commercial partners could be required to conduct specific health economic and
other studies or analyses in order to satisfy such requirements. The decision to comply with such
requirements will depend on the prospects of obtaining a positive opinion and the costs involved in
the process and the profitability of the market.
In many jurisdictions, pricing plays an important role in the evaluation of prescription drugs for
reimbursement and in most cases, there are price controls that can include, but are not limited to,
reference pricing to drugs sold within the country and in other countries, the evaluation of what a
fair price would be based on the condition that is being treated and innovative quality of the new
drug.
Many countries, particularly in Europe, have initiated cost-cutting measures which have been
reflected in reduced budgets for drugs, higher discounts imposed on manufacturers and price
negotiations between authorities and manufacturers among other actions. We expect the current
reimbursement evaluation process and pricing policies to keep evolving in ways that we may not
foresee.
In Latin America, Brazil has a formal price procedure through Agência Nacional de Vigilância
Sanitoria (ANVISA) which determines the price of a pharmaceutical based on five reference
countries, including the United States. However, there is uncertainty in pricing of pharmaceutical
drugs in Latin America in general.
Pursuant to our agreements with Sanofi and Ferrer, each is responsible for identifying and
obtaining possible reimbursements under such government programs in their respective territories.
2.11 EMPLOYEES
As at November 30, 2010, we had 99 employees, all of whom were employed in Canada. All of our
employees are engaged in administration, finance, research and development, regulatory and business
development functions. None of our employees are unionized. We believe the relations with our
employees are good.
2.12 FACILITIES
We carry out our activities at 2310 Alfred-Nobel Boulevard in the Technoparc Montréal in Ville
Saint-Laurent, Québec, Canada. We lease a 36,400 square-foot building, which houses both offices
and laboratories which enable us to conduct small-scale peptide manufacturing, discovery and manage
preclinical and clinical research.
The facilities contain laboratories which enable us to conduct small-scale peptide manufacturing,
discovery and preclinical research. Peptide compounds are synthesized by our pharmaceutical
development department using manual and semiautomatic methods with reactors of different sizes
(from 50 to 8000 ml) and also a 12-channel automated peptide synthesizer. The peptides are purified
using preparative high performance liquid chromatography, or HPLC, comprising either the Dynamic
Axial Compression column, or a number of pre-packed columns. The final peptides are dried to a
solid form using lyophilization equipment. The analyses on the quality of the peptides are done
using a variety of equipment including HPLC instruments Agilent 1100 and 1200, UV
spectrophotometers and a water content analyzer.
We also have discovery and preclinical research laboratories which include two cell culture rooms
and several chemical hoods. A Mesoscale chemiluminometer (Sector PR100) is used for sensitive
immunological and cell-based assays. Several HPLC instruments for preformulation and purity
determinations, scintillation spectrophotometers for radioactivity measurements, and
fluorospectrophotometers and colorimetric plate readers for cell-based screens and immunoassays
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enable in-house discovery and preclinical research. A designated laboratory section is equipped to
conduct studies according to GLP.
2.13 ENVIRONMENT
To our
knowledge, at our current development stage, environmental protection requirements do not
have a significant financial or operational impact on our capital expenditures, income or
competitive position within the normal course of our operating activities.
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ITEM 3 RISK FACTORS
Before you invest in our common shares, you should understand the high degree of risk involved. You
should consider carefully the following risks and uncertainties described below before you decide
to purchase our common shares. The following risks may adversely impact our business, financial
condition, operating results and prospects. Additional risks and uncertainties, including those
that we do not know about or that we currently believe are immaterial, may also adversely affect
our business, financial condition, operating results or prospects. As a result, the trading price
of our common shares could decline and you could lose all or part of your investment.
3.1 RISKS RELATED TO THE COMMERCIALIZATION OF OUR PRODUCT AND PRODUCT CANDIDATES
Our commercial success depends largely on the commercialization of EGRIFTATM; the
failure of EGRIFTATM to obtain commercial acceptance would have a material adverse
effect on us.
Our ability to generate revenues in the future is primarily based on the commercialization of
EGRIFTATM for the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy. In the short-term, these revenues should be primarily derived from the U.S. market
alone. Although we have entered into a collaboration and licensing agreement with EMD Serono for
the commercialization of EGRIFTATM in the United States, there can be no assurance that
EGRIFTATM will be successfully commercialized in the United States, or in any other
country. Although we are developing other peptides, all of them are at earlier stages of
development and none of them may reach the clinical trial phase, obtain regulatory approval or,
even if approved, be successfully commercialized.
The overall commercialization success of EGRIFTATM for the reduction of excess abdominal
fat in HIV-infected patients with lipodystrophy will depend on several factors, including:
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receipt of regulatory approvals for EGRIFTATM from regulatory agencies in the
territories other than the United States in which we wish to expand the commercialization
of tesamorelin; |
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market acceptance of EGRIFTATM by the medical community, patients and
third-party payors (such as governmental health administration authorities and private
health coverage insurers); |
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the amount of resources devoted by our commercial partners to commercialize
EGRIFTATM in their respective territories; |
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maintaining manufacturing and supply agreements to ensure the availability of commercial
quantities of EGRIFTATM through validated processes; |
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the number of competitors in our market; and |
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protecting and enforcing our intellectual property and avoiding patent infringement
claims. |
The inability to successfully commercialize EGRIFTATM in the United States for the
reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the short term
would delay our capacity to generate revenues and would have a material adverse effect on our
financial condition and operating results.
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We are or will be dependent on a limited number of collaboration and licensing agreements for
the commercialization of EGRIFTATM in the United States, Europe, Latin America, Africa
and the Middle East. These agreements place the commercialization of EGRIFTATM in these
markets outside of our control.
Although our collaboration and licensing agreements with EMD Serono, Sanofi and Ferrer contain
provisions governing their respective responsibilities as partners for the commercialization of
EGRIFTATM in their respective territories, our dependence on these partners to
commercialize EGRIFTATM is subject to a number of risks, including:
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our limited control of the amount and timing of resources that our commercial partners
will be devoting to the commercialization, marketing and distribution of tesamorelin,
including obtaining patient reimbursement for EGRIFTATM, which could adversely
affect our ability to obtain or maximize our royalty payments; |
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disputes or litigation that may arise between us and our commercial partners, which
could adversely affect the commercialization of tesamorelin, all of which would divert our
managements attention and our resources; |
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our commercial partners not properly defending our intellectual property rights or using
them in such a way as to expose us to potential litigation, which could, in both cases,
adversely affect the value of our intellectual property rights; and |
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corporate reorganizations or changes in business strategies of our commercial partners,
which could adversely affect a commercial partners willingness or ability to fulfill its
obligations under its respective agreement. |
Our collaboration and licensing agreements may be terminated by our partners in the event of a
breach by us of our obligations under such agreements, including our obligation to supply
EGRIFTATM, for which we rely on third parties. Our collaboration and licensing agreement
with EMD Serono can also be terminated by EMD Serono for their convenience on 180 days notice to
us. Such a termination could have an adverse effect on our revenues related to the
commercialization of EGRIFTATM in the United States. In addition, EMD Serono has listed
a patent held by one of its affiliates in the Orange Book under the Hatch-Waxman Act with respect
to EGRIFTATM in HIV-associated lipodystrophy. In the event of a termination of our
agreement with EMD Serono, EMD Serono could assert that such patent would be infringed by our
continued sale of EGRIFTATM in the United States. Any such assertion would divert our
managements attention and, if successful, could expose us to damages or require us to obtain a
license from EMD Serono in order to continue selling EGRIFTATM in the United States, all
of which could have a material adverse effect on our results of operations, cash flows and
financial conditions.
If any one of our commercial partners terminates their agreement with us or fails to effectively
commercialize EGRIFTATM, for any of the foregoing or other reasons, we may not be able
to replace the commercial partner and any of these events would have a material adverse effect on
our business, results of operations and our ability to achieve future profitability, and could
cause our share price to decline.
We rely on third parties for the manufacture and supply of EGRIFTATM and
tesamorelin and such reliance may adversely affect us if the third parties are unable or unwilling
to fulfill their obligations.
The manufacture of pharmaceutical products requires significant expertise and capital investment,
including the development of advanced manufacturing techniques and process controls. We do not
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own or operate manufacturing facilities for the production of tesamorelin or any of our other
product candidates, nor do we have plans to develop our own manufacturing operations in the
foreseeable future. We currently rely on third parties to manufacture and supply all of our
required raw materials, drug substance and drug product for our preclinical research, clinical
trials and commercial sales. For tesamorelin for clinical studies and EGRIFTATM for
commercial sales, we are currently using, and relying on, single suppliers and single manufacturers
for starting materials and the final drug substance. Although potential alternative suppliers and
manufacturers have been identified, we have not qualified these vendors to date and no assurance
can be given that such suppliers will be qualified in the future or receive necessary regulatory
approval.
Our reliance on third-party manufacturers exposes us to a number of risks. We may be subject to
delays in or suspension of the manufacturing of EGRIFTATM and tesamorelin if a
third-party manufacturer:
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becomes unavailable to us for any reason, including as a result of the failure to comply
with GMP regulations; |
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experiences manufacturing problems or other operational failures, such as equipment
failures or unplanned facility shutdowns required to comply with GMP or damage from any
event, including fire, flood, earthquake, business restructuring or insolvency; or |
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fails to perform its contractual obligations under our agreement, such as failing to
deliver the quantities requested on a timely basis. |
Any delay in or suspension of the supply of EGRIFTATM could delay or prevent the sale of
EGRIFTATM and, accordingly, adversely affect our revenues and results of operations. In
addition, any manufacturing delay or delay in delivering EGRIFTATM may result in our
being in default under our collaboration agreements. If the damage to a suppliers manufacturer
facility is extensive, or, for any reason, it does not operate in compliance with GMP or the
third-party manufacturer is unable or refuses to perform its obligations under our agreement, we
would need to find an alternative third-party manufacturer. The selection of a replacement
third-party manufacturer would be time-consuming and costly since we would need to validate the
manufacturing facility of such new third-party manufacturer. The validation process would include
an assessment of the capacity of such third-party manufacturer to produce the quantities that we
may request from time to time, the manufacturing process and its compliance with GMP. In addition,
the third-party manufacturer would have to familiarize itself with our technology. Any delay in
finding an alternative third-party manufacturer of tesamorelin and EGRIFTATM could
result in a shortage of such analogue or product, which could materially adversely affect our
business and results of operations.
Any delay in or suspension of the supply of tesamorelin could delay or interrupt the conduct of
clinical trials of our new clinical programs relating to muscle wasting in COPD.
Even though we have received regulatory approval for EGRIFTATM in the United
States, we still may not be able to successfully commercialize it if we do not gain market
acceptance and the revenue that we generate from its sales, if any, may be limited.
The commercial success of EGRIFTATM or any future products for which we obtain marketing
approval from the FDA or other regulatory authorities, will depend upon the acceptance of such
product by the medical community, including physicians, patients and health care payors. The degree
of market acceptance of any of our products will depend on a number of factors, including:
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acceptance of the product by physicians and patients as safe and effective treatments
and addressing a significant unmet medical need; |
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product price; |
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the effectiveness of our sales and marketing efforts (or those of our commercial
partners); |
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storage requirements and ease of administration; |
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dosing regimen; |
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safety and efficacy; |
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prevalence and severity of side effects; |
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competitive products; |
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the ability to obtain and maintain sufficient third-party coverage or reimbursement from
government health care programs, including Medicare and Medicaid, private health insurers
and other third-party payors; and |
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the willingness and ability of patients to pay out-of-pocket in the absence of
third-party coverage. |
If EGRIFTATM does not achieve an adequate level of acceptance by physicians, health care
payors and patients, we may not generate sufficient revenue from this product, and we may not be
able to achieve profitability. Our efforts, and the efforts of our commercial partners, to educate
the medical community and third-party payors on the benefits of tesamorelin may require significant
resources and may never be successful.
We have no internal sales, marketing or distribution capabilities so we must rely on strategic
alliance agreements with third parties for the sale and marketing of EGRIFTATM or any
future products.
We currently have no internal sales, marketing or distribution capabilities and we rely on our
commercial partners to market and sell EGRIFTATM in their respective territories. Our
agreements with our commercial partners contain termination provisions which, if exercised, could
delay or suspend the commercialization of EGRIFTATM or any future products.
In the event of any such termination, in order to continue commercialization, we would be required
to build our own sales force or enter into agreements with third parties to provide such
capabilities. We currently have limited marketing capabilities and we have limited experience in
developing, training or managing a sales force. The development of a sales force would be costly
and would be time-consuming given the limited experience we have in this area. To the extent we
develop a sales force, we could be competing against companies that have more experience in
managing a sales force than we have and that have access to more funds than we with which to manage
a sales force. Consequently, there can be no assurance that a sales force which we develop would be
efficient and would maximize the revenues derived from the sale of EGRIFTATM or any
future products.
We are substantially dependent on revenues from EGRIFTATM.
Our current and future revenues depend substantially upon sales of EGRIFTATM by our
commercial partners, EMD Serono, Sanofi and Ferrer. Any negative developments relating to this
product, such as safety or efficacy issues, the introduction or greater acceptance of competing
products, including those marketed and sold by our commercial partners, or adverse regulatory or
legislative developments, would have a material adverse effect on our business, prospects and
results of
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operations. Although we continue to develop additional product candidates for commercialization, we
expect to be substantially dependent on sales from EGRIFTATM for the foreseeable future.
A decline in sales from this product would have a material adverse affect on our business and
financial condition.
Our levels of revenues are highly dependent on obtaining patient reimbursement for
EGRIFTATM.
Market acceptance and sales of EGRIFTATM will substantially depend on the availability
of reimbursement from third party payors such as governmental authorities, including U.S. Medicare
and Medicaid, managed care providers, and private insurance plans and may be affected by healthcare
reform measures in the United States and elsewhere. Government authorities and third-party payors,
such as private health insurers and health maintenance organizations, decide which medications they
will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry
and elsewhere is cost containment. Government authorities and these third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular
medications. Increasingly, third-party payors have been challenging the prices charged for
products.
Under our agreements with our commercial partners, they are responsible for seeking reimbursement
of EGRIFTATM in their respective territories and as a result we have no control over
whether or what level of reimbursement is achieved.
We cannot be sure that reimbursement by insurers, government or other third parties will be
available for EGRIFTATM and, if reimbursement is available, the level of reimbursement
provided to patients. Reimbursement may impact the demand for, or the price of,
EGRIFTATM and our future products for which we obtain marketing approval. If
reimbursement is not available or is available only in limited amount, our commercial partners may
not be able to successfully commercialize EGRIFTATM or our future products and it will
have a material adverse effect on our revenues and royalties, business and prospects.
A variety of risks associated with our international business relationships could materially
adversely affect our business.
International business relationships in the United States, Europe, Latin America, Africa, the
Middle East and elsewhere subject us to additional risks, including:
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differing regulatory requirements for drug approvals in foreign countries; |
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potentially reduced protection for intellectual property rights; |
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potential third-party patent rights in foreign countries; |
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the potential for so-called parallel importing, which is what happens when a local
seller, faced with high or higher local prices, opts to import goods from a foreign market,
with low or lower prices, rather than buying them locally; |
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unexpected changes in tariffs, trade barriers and regulatory requirements; |
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economic weakness, including inflation, or political instability, particularly in
foreign economies and markets; |
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compliance with tax, employment, immigration and labour laws for employees traveling
abroad; |
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foreign taxes; |
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foreign exchange contracts and foreign currency fluctuations, which could result in
increased operating expenses and reduced revenue, and other obligations incident to doing
business in another country; |
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workforce uncertainty in countries where labour unrest is more common than in the United
States and Canada; |
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production shortages resulting from any events affecting raw material supply or
manufacturing capabilities abroad; and |
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business interruptions resulting from geo-political actions, including war and
terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, floods,
hurricanes and fires. |
These and other risks of international business relationships may materially adversely affect our
business, prospects, results of operations and financial condition.
Governments outside the United States tend to impose strict price controls, which may
adversely affect our revenues, if any.
In several countries, including countries which are in Europe, Latin America, Africa, and the
Middle East, the pricing of prescription drugs may be subject to governmental control. In these
countries, pricing negotiations with governmental authorities can take considerable time and delay
the marketing of a product. To obtain reimbursement or pricing approval in some countries, a
clinical trial that compares the cost-effectiveness of a product candidate to other available
therapies may be required. If reimbursement of our product is unavailable or limited in scope or
amount, or if pricing is set at unsatisfactory levels, our commercial partners may not be willing
to devote resources to market and commercialize EGRIFTATM or may decide to cease
marketing such product. In such case, our business, prospects and results of operations could be
materially adversely affected.
We face competition and the development of new products by other companies could materially
adversely affect our business and products.
The biopharmaceutical and pharmaceutical industries are highly competitive and we must compete with
pharmaceutical companies, biotechnology companies, academic and research institutions as well as
governmental agencies for the development and commercialization of products, most of which have
substantially greater financial, technical and personnel resources than us. Although we believe
that we have no direct competitors for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy, we could face indirect competition from other companies developing
and/or commercializing metabolic products and/or other products that reduce or eliminate the
occurrence of lipodystrophy.
In the other clinical programs that we are currently evaluating for development, there may exist
companies that are at a more advanced stage of developing a product to treat the diseases for which
we are evaluating clinical programs. Some of these competitors could have access to capital
resources, research and development personnel and facilities that are superior to ours. In
addition, some of these competitors could be more experienced than we are in the development and
commercialization of medical products and already have a sales force in place to launch new
products. Consequently, they may be able to develop alternative forms of medical treatment which
could compete with our products and which could be commercialized more rapidly and effectively than
our products.
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If we fail to comply with government regulations regarding the import and export of products
and raw materials, we could be subject to fines, sanctions and penalties that could adversely
affect our ability to operate our business.
We import and export products and raw materials from and to several jurisdictions around the world.
This process requires us and our commercial partners to operate in a number of jurisdictions with
different customs and import/export regulations. The regulations of these countries are subject to
change from time to time and we cannot predict the nature, scope or impact of these changes upon
our operations. We and our commercial partners are subject to periodic reviews and audits by U.S.
and foreign authorities responsible for administering these regulations. To the extent that we or
our commercial partners are unable to successfully defend against an audit or review, we may be
required to pay assessments, penalties and increased duties, which may, individually or in the
aggregate, negatively impact our business, operating results and financial condition.
3.2 RISKS RELATED TO THE REGULATORY REVIEW PROCESS
Even after regulatory approval has been obtained regulatory agencies may impose limitations on
the indicated uses for which our products may be marketed, subsequently withdraw approval or take
other actions against us that would be adverse to our business.
Even though we have obtained marketing approval of EGRIFTATM in the United States, the
FDA and regulatory agencies in other countries have the ability to limit the indicated use of a
product. Also, the manufacture, marketing and sale of our products will be subject to ongoing and
extensive governmental regulation in the country in which we intend to market our products. For
example, although we obtained marketing approval of EGRIFTATM for the reduction of
excess abdominal fat in HIV-infected patients with lipodystrophy in the United States, the
marketing of EGRIFTATM will be subject to extensive regulatory requirements administered
by the FDA, such as adverse event reporting and compliance with marketing and promotional
requirements. The FDA has also requested that we comply with certain post-approval requirements in
connection with the approval of EGRIFTATM for the reduction of excess abdominal fat in
HIV-infected patients with lipodystrophy, namely, the development of a single vial formulation of
EGRIFTATM (the development of a new presentation of the same formulation), a long-term
observational safety study using EGRIFTATM; and a Phase 4 clinical trial. Although we
have received marketing approval from the FDA of tesamorelin for the reduction of excess abdominal
fat in HIV-infected patients with lipodystrophy, there can be no guarantee that regulatory agencies
in other countries will approve tesamorelin for this treatment in their respective countries.
Our third party manufacturing facilities for EGRIFTATM will also be subject to
continuous reviews and periodic inspections and approval of manufacturing modifications by
regulatory agencies, including the FDA. The facilities must comply with GMP regulations. The
failure to comply with FDA requirements can result in a series of administrative or judicial
sanctions or other setbacks, including:
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restrictions on the use of the product, manufacturers or manufacturing processes; |
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warning letters; |
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civil or criminal penalties; |
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fines; |
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injunctions; |
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product seizures or detentions; |
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import or export bans or restrictions; |
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product recalls and related publicity requirements; |
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suspension or withdrawal of regulatory approvals; |
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total or partial suspension of production; and |
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refusal to approve pending applications for marketing approval of new product candidates
or supplements to approved applications. |
Addressing any of the foregoing or any additional requirements of the FDA or other regulatory
authorities may require significant resources and could impair our ability to successfully
commercialize our product candidates.
To date, we do not have the required regulatory approvals to commercialize
EGRIFTATM outside of the United States and cannot guarantee that we will obtain such
regulatory approvals or that any of our product candidates will be approved for commercialization
in any country, including the United States.
The commercialization of EGRIFTATM outside of the United States and our future products
first requires the approval of the regulatory agencies in each of the jurisdictions where we intend
to sell such products. In order to obtain the required approvals, we must demonstrate, following
preclinical and clinical studies, the safety, efficacy and quality of a product.
The rules and regulations relating to the approval of a new drug are complex and stringent.
Although we have received marketing approval in the United States from the FDA for
EGRIFTATM, there can be no guarantee that regulatory agencies in other territories will
approve EGRIFTATM in their respective countries.
All of our product candidates are subject to preclinical and clinical studies. If the results of
such studies are not positive, we may not be in a position to make any filing to obtain the
regulatory approval for the product candidate or, even where a product candidate has been filed for
approval, we may have to conduct additional clinical trials or testing on such product candidate in
an effort to obtain results that further support the safety and efficacy of such product candidate.
Such studies are often costly and may also delay a filing or, where additional studies or testing
are required after a filing has been made, the approval of a product candidate.
While an application for a new drug is under review by a regulatory agency, it is standard for such
regulatory agency to ask questions regarding the application that was submitted. If these questions
are not answered quickly and in a satisfactory manner, the marketing approval of the product
candidate subject to the review and its commercialization could be delayed or, if the questions are
not answered in a satisfactory manner, denied. If EGRIFTATM is not approved by the
appropriate regulatory agencies for commercialization outside of the United States, our capacity to
generate revenues in the long-term will be impaired and this will have an adverse effect on our
financial condition and our operating results.
Obtaining regulatory approval is subject to the discretion of regulatory agencies in each relevant
jurisdiction. Therefore, even if we obtain regulatory approval from one agency, or succeed in
filing the equivalent of an NDA, in other countries, or have obtained positive results relating to
the safety and efficacy of a product candidate, a regulatory agency may not accept the filing or
the results contained therein as being conclusive evidence of the safety and efficacy of a product
candidate in order to allow us to sell the product candidate in its country. A regulatory agency
may require that additional
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tests on the safety and efficacy of a product candidate be conducted prior to granting approval of
such product candidate. These additional tests may delay the approval of such product candidate,
can have a material adverse effect on our financial condition and results of operations based on
the type of additional tests to be conducted and may not necessarily lead to the approval of the
product candidate.
We have only obtained FDA approval for EGRIFTATM and we must complete several
preclinical studies and clinical trials for our other product candidates which may not yield
positive results and, consequently, could prevent us from obtaining regulatory approval.
Obtaining FDA approval for the commercialization of drug products requires a demonstration through
preclinical studies and clinical trials that the drug is safe and effective. All of our product
candidates are at the discovery stage, except our peptide for the treatment of AKI, which is in
preclinical development. In addition, in order to market tesamorelin for other indications, we will
need to demonstrate its effectiveness and safety through additional studies and clinical trials.
Favourable results in our trials of tesamorelin for the reduction of excess abdominal fat in
HIV-infected patients with lipodystrophy may not be predictive of the efficacy and safety results
in our Phase 2 clinical trials of tesamorelin for the treatment of muscle wasting in COPD.
If any of our preclinical studies or clinical trials fail to show positive efficacy data or result
in adverse patient reactions, we may be required to perform additional preclinical studies or
clinical trials, to extend the term of our studies and trials, to increase the number of patients
enrolled in a given trial or to undertake ancillary testing. Any of these events could cause an
increase in the cost of product development, delay filing of an application for marketing approval
or result in the termination of a study or trial and, accordingly, could cause us to cease the
development of a product candidate. In addition, the future growth of our business could be
negatively impacted since there can be no guarantee that we will be able to develop new compounds,
license or purchase compounds or product candidates that will result in marketed products.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain
marketing approval of and commercialize our product candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and
regulatory changes and proposed changes regarding the healthcare system that could prevent or delay
marketing approval for our product candidates, restrict or regulate post-approval activities and
affect our ability to profitably sell EGRIFTATM or any of our other product candidates
for which we intend to seek marketing approval.
Legislative and regulatory proposals have been made to expand post-approval requirements and
restrict sales and promotional activities for pharmaceutical products. We are not sure whether
additional legislative changes will be enacted, or whether the FDA regulations, guidance or
interpretations will be changed, or what the impact of such changes on the marketing approvals of
our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the
FDAs approval process may significantly delay or prevent marketing approval, as well as subject us
to more stringent product labeling and post-marketing testing and other requirements.
In the United States, the MMA changed the way Medicare covers and pays for pharmaceutical products.
The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new
reimbursement methodology based on average sales prices for drugs. In addition, this legislation
authorized Medicare Part D prescription drug plans to use formularies where they can limit the
number of drugs that will be covered in any therapeutic class. As a result of this legislation and
the expansion of federal coverage of drug products, we expect that there will be additional
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pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this
legislation could decrease the coverage and sales price that we receive for EGRIFTATM or
any other approved products and could seriously harm our business. While the MMA applies only to
drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and
payment limitations in setting their own reimbursement rates, and any reduction in reimbursement
that results from the MMA may result in a similar reduction in payments from private payors.
More recently, in March 2010, U.S. President Obama signed into law the Health Care Reform Law, a
sweeping law intended to broaden access to health insurance, reduce or constrain the growth of
healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements
for healthcare and health insurance industries, impose new taxes and fees on the health industry
and impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law
revised the definition of average manufacturer price for reporting purposes, which could increase
the amount of Medicaid drug rebates to states. Further, beginning in 2011, the new law imposes a
significant annual fee on companies that manufacture or import branded prescription drug products.
We will not know the full effects of the Health Care Reform Law until applicable U.S. federal and
state agencies issue regulations or guidance under the new law. Although it is too early to
determine the effect of the Health Care Reform Law, the new law appears likely to continue to apply
the pressure on pharmaceutical pricing. Pressure on pharmaceutical pricing may adversely affect the
amount of our royalties in the United States.
3.3 RISKS RELATED TO OUR INTELLECTUAL PROPERTY
Our failure to protect our intellectual property may have a material adverse effect on our
ability to develop and commercialize our products.
We will be able to protect our intellectual property rights from unauthorized use by third parties
only to the extent that our intellectual property rights are covered and protected by valid and
enforceable patents or are effectively maintained as trade secrets. We try to protect our
intellectual property position by, among other things, filing patent applications related to our
proprietary technologies, inventions and improvements that are important to the development of our
business.
Because the patent position of pharmaceutical companies involves complex legal and factual
questions, the issuance, scope, validity, and enforceability of patents cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or circumvented. If our patents are
invalidated or found to be unenforceable, we would lose the ability to exclude others from making,
using or selling the inventions claimed. Moreover, an issued patent does not guarantee us the right
to use the patented technology or commercialize a product using that technology. Third parties may
have blocking patents that could be used to prevent us from developing our product candidates,
selling our products or commercializing our patented technology. Thus, patents that we own may not
allow us to exploit the rights conferred by our intellectual property protection.
Our pending patent applications may not be issued or granted as patents. Even if issued, they may
not be issued with claims of sufficient breadth to protect our product candidates and technologies
or may not provide us with a competitive advantage against competitors with similar products or
technologies. Furthermore, others may independently develop products or technologies similar to
those that we have developed or may reverse engineer or discover our trade secrets through proper
means. In addition, the laws of many countries do not protect intellectual property rights to the
same extent as the laws of Canada, the United States and the European Patent Convention, and those
countries may also lack adequate rules and procedures for defending intellectual property rights
effectively.
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Although we have received patents from the USPTO for the treatment of HIV-related lipodystrophy
with tesamorelin, there can be no guarantee that, in the other countries where we filed patent
applications for the treatment of HIV-related lipodystrophy, we will receive a patent or obtain
granted claims of similar breadth to those granted by the USPTO.
We also rely on trade secrets, know-how and technology, which are not protected by patents, to
maintain our competitive position. We try to protect this information by entering into
confidentiality agreements with parties who have access to such confidential information, such as
our current and prospective suppliers, distributors, manufacturers, commercial partners, employees
and consultants. Any of these parties may breach the agreements and disclose confidential
information to our competitors. It is possible that a competitor will make use of such
information, and that our competitive position could be disadvantaged.
Enforcing a claim that a third party infringes on, has illegally obtained or is using an
intellectual property right, including a trade secret or know-how, is expensive and time-consuming
and the outcome is unpredictable. In addition, enforcing such a claim could divert managements
attention from our business. If any intellectual property right were to be infringed, disclosed to
or independently developed by a competitor, our competitive position could be harmed. Any adverse
outcome of such litigation or settlement of such a dispute could subject us to significant
liabilities, could put one or more of our pending patent applications at risk of being invalidated
or interpreted narrowly, could put one or more of our patents at risk of not issuing, or could
facilitate the entry of generic products. Any such litigation could also divert our research,
technical and management personnel from their normal responsibilities.
Our ability to defend ourselves against infringement by third parties of our intellectual property
in the United States with respect to tesamorelin for the treatment of HIV-related lipodystrophy
depends, in part, on our commercial partners decision to bring an action against such third party.
Under the terms and conditions of our collaboration and licensing agreement with EMD Serono, EMD
Serono has the first right to bring an action against a third party for infringing our patent
rights with respect to tesamorelin for the treatment of HIV-related lipodystrophy. Any delay in
pursuing such action or in advising us that it does not intend to pursue the matter could decrease
sales, if any, of tesamorelin for the treatment of HIV-related lipodystrophy and adversely affect
our revenues.
Furthermore, because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. For example, confidential information
may be disclosed, inadvertently or as ordered by the court, in the form of documents or testimony
in connection with discovery requests, depositions or trial testimony. This disclosure would
provide our competitors with access to our proprietary information and may harm our competitive
position.
Our commercial success depends, in part, on our ability not to infringe on third party patents
and other intellectual property rights.
Our capacity to commercialize our product candidates, and more particularly tesamorelin, will
depend, in part, upon our ability to avoid infringing third party patents and other third-party
intellectual property rights. The biopharmaceutical and pharmaceutical industries have produced a
multitude of patents and it is not always easy for participants, including us, to determine which
patents cover various types of products, processes of manufacture or methods of use. The scope and
breadth of patents is subject to interpretation by the courts and such interpretation may vary
depending on the jurisdiction where the claim is filed and the court where such claim is litigated.
The fact that we own patents for tesamorelin and for the treatment of HIV-related lipodystrophy
does not guarantee that we are not infringing one or more third-party patents and there can be no
guarantee that we will not infringe or
-46-
violate third-party patents and other third-party intellectual property rights in the United States
or other jurisdictions.
Patent analysis for non-infringement is based in part on a review of publicly available databases.
Although we review from time to time certain databases to conduct patent searches, we do not have
access to all databases. It is also possible that we will not have reviewed some of the information
contained in the databases or we found it to be irrelevant at the time we conducted the searches.
In addition, because patents take years to issue, there may be currently pending applications that
have not yet been published or that we are unaware of, which may issue later as patents. As a
result, there can be no guarantee that we will not violate third-party patents.
Because of the difficulty in analyzing and interpreting patents, there can be no guarantee that a
third party will not assert that we infringe such third-partys patents or any of its other
intellectual property rights. Under such circumstances, there is no guarantee that we would not
become involved in litigation. Litigation with any third party, even if the allegations are without
merit, is expensive, time-consuming and would divert managements attention from the daily
execution of our business plan. Litigation implies that a portion of our financial assets would be
used to sustain the costs of litigation instead of being allocated to further the development of
our business.
If we are involved in patent infringement litigation, we would need to prevail in demonstrating
that our products do not infringe the asserted patent claims of the relevant patent, that the
patent claims are invalid or that the patent is unenforceable. If we are found to infringe a
third-party patent or other intellectual property right, we could be required to enter into royalty
or licensing agreements on terms and conditions that may not be favourable to us, and/or pay
damages, including up to treble damages in the United Sates (for example, if found liable of wilful
infringement) and/or cease the development and commercialization of our product candidates. Even if
we were able to obtain a license, the rights may be nonexclusive, which could result in our
competitors gaining access to the same intellectual property and to compete with us.
We have not been served with any notice alleging that we infringe a third-party patent, but there
may be issued patents that we are unaware of that our products may infringe, or patents that we
believe we do not infringe but ultimately could be found to infringe. We are aware of third-party
patents for the reduction of accumulation of fat tissue in HIV patients and, if a patent
infringement suit was brought against us, we believe that we should not be found to infringe any
valid claims of these patents. If we were to challenge the validity of a competitors issued United
States patent in a United States court, we would need to overcome a statutory presumption of
validity that attaches to every United States patent. This means that, in order to prevail, we
would have to present clear and convincing evidence as to the invalidity of the patents claims. We
cannot guarantee that a court would find in our favour on questions of infringement and validity.
Any finding that we infringe or violate a third-party patent or other intellectual property right
could materially adversely affect our business, financial condition and operating results.
3.4 OTHER RISKS RELATED TO OUR BUSINESS
We have a history of net losses and we may never achieve high profitability.
We have been reporting losses since our inception (except for the financial years ended November
30, 2010, 2001 and 2000) and, as at November 30, 2010, we had an accumulated deficit of
$235,116,000. We do not expect to generate significant recurrent revenues sufficient to cover our
overall activities in the immediate future. As a result of the foregoing, we will need to generate
significant revenues to achieve profitability.
-47-
Our profitability will depend on, among other things, our commercial partners ability and
willingness to successfully commercialize EGRIFTATM and to obtain regulatory approval
for the use of tesamorelin in the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy in Europe, Latin America, Africa and the Middle East. However, there is no guarantee
that our commercial partners will succeed in commercializing EGRIFTATM or that our
product candidates will ever receive approval for commercialization in any jurisdiction and,
accordingly, we may never sustain profitability.
We rely on third-party service providers to conduct our preclinical studies and clinical
trials and the failure by any of these third parties to comply with their obligations may delay the
studies which could have an adverse effect on our development programs.
We have limited human resources to conduct preclinical studies and clinical trials and must rely on
third-party service providers to conduct our studies and trials and carry out certain data
gathering and analyses. If our third-party service providers become unavailable for any reason,
including as a result of the failure to comply with the rules and regulations governing the conduct
of preclinical studies and clinical trials, operational failures such as equipment failures or
unplanned facility shutdowns, or damage from any event such as fire, flood, earthquake, business
restructuring or insolvency or, if they fail to perform their contractual obligations pursuant to
the terms of our agreements with them, such as failing to perform the testing, compute the data or
complete the reports further to the testing, we may incur delays which may be significant in
connection with the planned timing of our trials and studies which could adversely affect the
timing of the development program of a product candidate or the filing of an application for
marketing approval in a jurisdiction where we rely on third-party service providers to make such
filing. In addition, where we rely on such third-party service provider to help in answering any
question raised by a regulatory agency during its review of one of our files, the unavailability of
such third-party service provider may adversely affect the timing of the review of an application
and, could ultimately delay the approval. If the damages to any of our third-party service
providers are material, or, for any reason, such providers do not operate in compliance with GLP or
are unable or refuse to perform their contractual obligations, we would need to find alternative
third-party service providers.
If we needed to change or select new third-party service providers, the planned working schedule
related to preclinical studies and/or clinical trials could be delayed since the number of
competent and reliable third-party service providers of preclinical and clinical work in compliance
with GLP is limited. In addition, if we needed to change or select new third-party service
providers to carry out work in response to a regulatory agency review of one of our applications,
there may be delays in responding to such regulatory agency which, in turn, may lead to delays in
commercializing a product candidate.
Any selection of new third-party service providers to carry out work related to preclinical studies
and clinical trials would be time-consuming and would result in additional delays in receiving
data, analysis and reports from such third-party service providers which, in turn, would delay the
filing of any new drug application with regulatory agencies for the purposes of obtaining
regulatory approval to commercialize our product candidates. Furthermore, such delays could
increase our expenditures to develop a product candidate and materially adversely affect our
financial condition and operating results.
The conduct of clinical trials requires the enrolment of patients and difficulties in
enrolling patients could delay the conduct of our clinical trials or result in their
non-completion.
The conduct of clinical trials requires the enrolment of patients. We may have difficulties
enrolling patients for the conduct of our future clinical trials as a result of design protocol,
the size of the patient population, the eligibility criteria to participate in the clinical trials,
the availability of competing therapies, the patient referral practices of physicians and the
availability of clinical trial sites. Difficulty
-48-
in enrolling patients for our clinical trials could result in the cancellation of clinical trials
or delays in completing them. Once patients are enrolled in a clinical trial, the occurrence of any
adverse drug effects or side effects observed during the trial could result in the clinical trial
being cancelled. Any of these events would have material adverse consequences on the timely
development of our product candidates, the filing of an NDA, or its equivalent, with regulatory
agencies and the commercialization of such product candidates.
We may require additional funding and may not be able to raise the capital necessary to fund
all or part of our capital requirements, including to continue and complete the research and
development of our product candidates and their commercialization.
We do not generate significant recurrent revenues and may need financing in order to fund all or
part of our capital requirements to sustain our growth, to continue research and development of new
product candidates, to conduct clinical programs, to develop our marketing and commercial
capabilities and to meet our compliance obligations with various rules and regulations to which we
are subject. In the past, we have been financed through public equity offerings in Canada and
private placements of our equity securities and we may need to seek additional equity offerings to
raise capital, the size of which cannot be predicted. However, the market conditions or our
business performance may prevent us from having access to the public market in the future at the
times or in the amounts necessary. Therefore, there can be no guarantee that we will be able to
continue to raise additional equity capital by way of public or private equity offerings in the
future. In such a case, we would have to use other means of financing, such as issuing debt
instruments or entering into private financing or credit agreements, the terms and conditions of
which may not be favourable to us. If adequate funding is not available to us, we may be required
to delay, reduce, or eliminate our research and development of new product candidates, our clinical
trials or our marketing and commercialization efforts to launch and distribute new products,
curtail significant portions of our product development programs that are designed to identify new
product candidates and sell or assign rights to our technologies, products or product candidates.
In addition, the issuance and sale of substantial amounts of equity, or other securities, or the
perception that such issuances and sales may occur could adversely affect the market price of our
common shares.
If product liability lawsuits are brought against us, they could result in costly and
time-consuming litigation and significant liabilities.
Despite all reasonable efforts to ensure the safety of EGRIFTATM and our other product
candidates, it is possible that we or our commercial partners will sell products which are
defective, to which patients react in an unexpected manner, or which are alleged to have side
effects. The manufacture and sale of such products may expose us to potential liability, and the
industries in which our products are likely to be sold have been subject to significant product
liability litigation. Any claims, with or without merit, could result in costly litigation, reduced
sales, significant liabilities and diversion of our managements time and attention and could have
a material adverse effect on our financial condition, business and results of operations.
If a product liability claim is brought against us, we may be required to pay legal and other
expenses to defend the claim and, if the claim is successful, damage awards may be substantial
and/or may not be covered, in whole or in part, by our insurance. We may not have sufficient
capital resources to pay a judgment, in which case our creditors could levy against our assets. We
may also be obligated to indemnify our commercial partners and make payments to other parties with
respect to product liability damages and claims. Defending any product liability claims, or
indemnifying others against those claims, could require us to expend significant financial and
managerial resources.
The development and commercialization of our drugs could expose us to liability claims which
could exceed our insurance coverage.
-49-
A risk of product liability claims is inherent in the development and commercialization of human
therapeutic products. Product liability insurance is very expensive and offers limited protection.
A product liability claim against us could potentially be greater than the available coverage and,
therefore, have a material adverse effect upon us and our financial condition. Furthermore, a
product liability claim could tarnish our reputation, whether or not such claims are covered by
insurance or are with or without merit.
We depend on our key personnel to research, develop and bring new products to the market and
the loss of key personnel or the inability to attract highly qualified individuals could have a
material adverse effect on our business and growth potential.
The operation of our business requires qualified scientific and management personnel. The loss of
scientific personnel or members of management could have a material adverse effect on our business.
In addition, our growth is and will continue to be dependent, in part, on our ability to hire and
retain the employment of qualified personnel. There can be no guarantee that we will be able to
continue to retain our current employees or will be able to attract qualified personnel to achieve
our business plan.
We may be unable to identify and complete in-licensing or acquisitions. In-licensing or
acquisitions could divert managements attention and financial resources, may negatively affect our
operating results and could cause significant dilution to our shareholders.
In the future, we may engage in selective in-licensing or acquisitions of products or businesses
that we believe are complementary to our products or business. There is a risk that we will not be
able to identify suitable in-licensing or acquisition candidates available for sale at reasonable
prices, complete any in-licensing or acquisition, or successfully integrate any in-licensed or
acquired product or business into our operations. We are likely to face competition for
in-licensing or acquisition candidates from other parties including those that have substantially
greater available resources. In-licensing or acquisitions may involve a number of other risks,
including:
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diversion of managements attention; |
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disruption to our ongoing business; |
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failure to retain key acquired personnel; |
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difficulties in integrating acquired operations, technologies, products or personnel; |
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unanticipated expenses, events or circumstances; |
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assumption of disclosed and undisclosed liabilities; |
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inappropriate valuation of the acquired in-process research and development, or the
entire acquired business; and |
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difficulties in maintaining customer relations. |
If we do not successfully address these risks or any other problems encountered in connection with
an acquisition, the acquisition could have a material adverse effect on our business, results of
operations and financial condition. Inherited liabilities of or other issues with an acquired
business could have a material adverse effect on our performance or our business as a whole. In
addition, if we proceed with an acquisition, our available cash may be used to complete the
transaction, diminishing
-50-
our liquidity and capital resources, or shares may be issued which could cause significant dilution
to our existing shareholders.
We may not achieve our publicly announced milestones on time.
From time to time, we publicly announce the timing of certain events to occur. These statements are
forward-looking and are based on the best estimate of management at the time relating to the
occurrence of such events. However, the actual timing of such events may differ from what has been
publicly disclosed. Events such as completion of a clinical program, discovery of a new product
candidate, filing of an application to obtain regulatory approval, beginning of commercialization
of our products or announcement of additional clinical programs for a product candidate may vary
from what is publicly disclosed. These variations may occur as a result of a series of events,
including the nature of the results obtained during a clinical trial or during a research phase,
problems with a supplier or a commercial partner or any other event having the effect of delaying
the publicly announced timeline. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, except as otherwise
required by law. Any variation in the timing of certain events having the effect of postponing such
events could have an adverse material effect on our business plan, financial condition or operating
results.
The outcome of scientific research is uncertain and our failure to discover new compounds
could slow down the growth of our portfolio of products.
We conduct research activities in order to increase our portfolio of product candidates. The
outcome of scientific research is uncertain and may prove unsuccessful and, therefore, may not lead
to the discovery of new molecules and progression of existing compounds to an advanced development
stage. Our inability to develop new compounds or to further develop the existing ones could slow
down the growth of our portfolio of products.
3.5 RISKS RELATED TO OUR COMMON SHARES
Our share price has been volatile, and an investment in our common shares could suffer a
decline in value.
Since our initial public offering in Canada, our valuation and share price have had no meaningful
relationship to current or historical financial results, asset values, book value or many other
criteria based on conventional measures of the value of common shares. The market price of our
common shares will fluctuate due to various factors including the risk factors described herein and
other circumstances beyond our control.
In the past, when the market price of a stock has been volatile, shareholders have often instituted
securities class action litigation against that company. If any of our shareholders brought a
lawsuit against us, we could incur substantial costs defending the lawsuit. The lawsuit could also
divert the time and attention of our management.
Our quarterly operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other
operating results will be affected by numerous factors, including:
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variations in the level of revenues and royalties received related to
EGRIFTATM; |
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variations in the level of expenses related to our development programs; |
-51-
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addition or termination of clinical trials; |
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any intellectual property infringement lawsuit in which we may become involved; |
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regulatory developments affecting our product candidates; |
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|
our execution of any collaborative, licensing or similar arrangements, and the timing of
payments we may make or receive under these arrangements; and |
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the achievement and timing of milestone payments under our existing strategic
partnership agreements. |
If our quarterly operating results fall below the expectations of investors or securities analysts,
the price of our common shares could decline substantially. Furthermore, any quarterly fluctuations
in our operating results may, in turn, cause the price of our stock to fluctuate substantially.
We do not intend to pay dividends on our common shares and, consequently, your ability to
achieve a return on your investment will depend on appreciation in the price of our common shares.
We have never declared or paid any cash dividend on our common shares and do not currently intend
to do so for the foreseeable future. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do not anticipate declaring or
paying any cash dividends for the foreseeable future. Therefore, the success of an investment in
our common shares will depend upon any future appreciation in their value. There is no guarantee
that our common shares will appreciate in value or even maintain the price at which our
shareholders have purchased their shares. See Dividend Policy.
Our revenues and expenses may fluctuate significantly and any failure to meet financial
expectations may disappoint securities analysts or investors and result in a decline in the price
of our common shares.
Our revenues and expenses have fluctuated in the past and are likely to do so in the future. These
fluctuations could cause our share price to decline. Some of the factors that could cause revenues
and expenses to fluctuate include the following:
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the inability to complete product development in a timely manner that results in a
failure or delay in receiving the required regulatory approvals or allowances to
commercialize product candidates; |
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the timing of regulatory submissions and approvals; |
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|
the timing and willingness of any current or future collaborators to invest the
resources necessary to commercialize the product candidates; |
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the outcome of any litigation; changes in foreign currency fluctuations; |
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|
the timing of achievement and the receipt of milestone payments from current or future
third parties; |
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failure to enter into new or the expiration or termination of current agreements with
third parties; and |
-52-
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failure to introduce the product candidates to the market in a manner that generates
anticipated revenues. |
We may be adversely affected by currency fluctuations.
A substantial portion of our revenue is earned in U.S. dollars, but a substantial portion of our
operating expenses are incurred in Canadian dollars. Fluctuations in the exchange rate between the
U.S. dollar and other currencies, such as the Canadian dollar, may have a material adverse effect
on our business, financial condition and operating results. We do not currently engage in
transactional hedging schemes but we do attempt to hedge or mitigate the risk of currency
fluctuations by actively monitoring and managing our foreign currency holdings relative to our
foreign currency expenses.
Our shareholder rights plan and certain Canadian laws could delay or deter a change of
control.
Our shareholder rights plan entitles a rights holder, other than a person or group holding 20% or
more of our common shares, to subscribe for our common shares at a discount of 50% to the market
price at that time, subject to certain exceptions. See Material Contracts-Shareholder Rights Plan
Agreement.
The Investment Canada Act (Canada) subjects an acquisition of control of a company by a
non-Canadian to government review if the value of the assets as calculated pursuant to the
legislation exceeds a threshold amount. A reviewable acquisition may not proceed unless the
relevant minister is satisfied that the investment is likely to be a net benefit to Canada.
Any of the foregoing could prevent or delay a change of control and may deprive or limit strategic
opportunities for our shareholders to sell their shares.
-53-
ITEM 4 DIRECTORS AND EXECUTIVE OFFICERS
4.1 DIRECTORS
The following table lists the names of our directors, their province or state and country of
residence, their principal occupation, their position or office held (if any), the year in which
each of them first became a director and the number of common shares and deferred share units each
of them beneficially owned, directly or indirectly, or over which they exercised control or
direction as of February 21, 2011. Each elected director remains in office until the next annual
meeting of shareholders, unless he resigns or his position becomes vacant following his death,
destitution or for any other reason before the next annual meeting of shareholders.
-54-
DIRECTORS
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Number of |
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Number of |
Name and Place of |
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Director |
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Common |
|
Deferred |
Residence |
|
Principal Occupation |
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Since |
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Shares |
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Share Units |
Paul Pommier(1) (2) (3) (4) (5)
Québec, Canada |
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Chairman of the Board |
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1997 |
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190,100 |
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20,998 |
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John-Michel T. Huss(4)
Québec, Canada |
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President and Chief Executive Officer of the Company |
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2010 |
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44,248 |
|
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Gilles Cloutier(3) (5)
North Carolina, United States |
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Corporate Director |
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2003 |
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71,000 |
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3,000 |
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A. Jean de Grandpré(2) (3) (4) (5)
Québec, Canada |
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Corporate Director |
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1993 |
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200,000 |
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5,250 |
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Robert G. Goyer(3)
Québec, Canada |
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Emeritus Professor Faculty of Pharmacy Université de Montreal |
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2005 |
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10,000 |
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5,250 |
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Gérald A. Lacoste(1) (3) (5)
Québec, Canada |
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Corporate Director |
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2006 |
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11,000 |
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5,250 |
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Bernard Reculeau(2)
Paris, France |
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Corporate Director |
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2005 |
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18,100 |
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3,000 |
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Jean-Denis Talon(1) (2) (4)
Québec, Canada |
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Chairman of the Board
AXA Canada (Insurance Company) |
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2001 |
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60,000 |
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3,000 |
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Luc Tanguay(4)
Québec, Canada |
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Senior Executive Vice President and Chief Financial Officer of the Company |
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1993 |
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83,000 |
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27,572 |
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(1) |
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Member of the Audit Committee |
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(2) |
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Member of the Compensation Committee |
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(3) |
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Member of the Nominating and Corporate Governance Committee |
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(4) |
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Member of the Finance Committee |
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(5) |
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Member of the Strategic Review Committee |
-55-
Biographical Notes of the Directors
Paul Pommier, MBA. Chairman of the Board. Mr. Paul Pommier worked for more than 25 years at
National Bank Financial Inc., his last position being Senior Executive Vice President, Corporate
and Government Finance. Throughout his career, he oversaw public and private financings, mergers
and acquisitions, as well as the marketing of investment offerings. Under his leadership, National
Bank Financial Inc. developed notable expertise in tax-shelter financings.
John-Michel T. Huss, MBA. President & Chief Executive Officer. John-Michel T. Huss brings more than
20 years of global experience in the pharmaceutical industry to Theratechnologies. He began his
career at Merck & Co., occupying various sales and marketing positions in the United States and in
Europe. In 1996, he accepted an International Product Manager position at the headquarters of F.
Hoffman-La Roche, in Basel, Switzerland. Mr. Huss joined Sanofi-Synthelabo GmbH in 1999, where he
held positions in Germany and in Canada. He was appointed General Manager of the Swiss subsidiary
at Sanofi in 2007 (Sanofi-Synthelabo merged with Aventis in 2004), and in 2009 was promoted to the
position of Chief of Staff, Office of the CEO, in Paris.
Gilles Cloutier, Ph.D. Corporate Director. Dr. Gilles Cloutier has over 30 years of experience in
the pharmaceutical industry including five years with contract research organizations, providing
strategic support to biotechnology and pharmaceutical companies. Dr. Cloutier has also held key
positions with large North-American pharmaceutical companies, where he developed expertise in the
field of clinical research. His experience includes the development and approval of several drugs
in Canada, the United States and Europe. Dr. Cloutier sits on our board of directors and is also
Chairman of the Fondation André Delambre for amyotrophic lateral sclerosis (ALS).
A. Jean de Grandpré, C.C., Q.C. Corporate Director. A. Jean de Grandpré contributed to Bell
Canadas significant growth as Chairman of the Board and Chief Executive Officer, and went on to
become the founding Chairman of the Board and Chief Executive Officer of BCE. In recognition of
these achievements, he was inducted into the Canadian Business Hall of Fame. Mr. de Grandpré also
served on the boards of directors of other important Canadian and US corporations, namely Northern
Telecom Limited, Chrysler Corporation, Sun Life Financial Inc. and Toronto Dominion Bank, and as a
member of the international advisory boards of Chemical Bank and Goldman Sachs. He has been a
member of our board of directors since our founding in October 1993 and was appointed Chairman in
1996. He resigned his position as Chairman in March 2007.
Robert G. Goyer, Ph.D. Emeritus professor, Faculty of Pharmacy of the Université de Montréal. Dr.
Goyer has more than 40 years of experience in the pharmaceutical field. Dr. Goyer is the former
President of Jouveinal Canada and is also a former dean of the Faculty of Pharmacy of Université de
Montréal. Recognized for his broad expertise in drug development, he has served on the boards of
several companies and governmental organizations. He was notably Chairman of the Advisory Committee
on drug approval procedures of Health Canadas Therapeutic Products Directorate and a member of the
board of directors of the Régie de lassurance maladie du Québec. He was Chairman of the Conseil du
médicament du Québec from 2003 to 2005.
Gérald A. Lacoste, Q.C. Corporate Director. Gérald A. Lacoste is a lawyer with extensive experience
in the fields of securities regulation, financing and corporate governance. He was previously
Chairman of the Québec Securities Commission (now known as the Autorité des marchés financiers) and
was also President and CEO of the Montreal Stock Exchange. During his career, Mr. Lacoste acted as
legal counsel to the Canadian Standing Senate Committee on Banking, Trade and Commerce, he chaired
the Québec Advisory Committee on Financial Institutions, and was a member of the task force on the
capitalization of life insurance companies in Québec. Mr. Lacoste is currently a corporate
director, actively involved in the biotechnology industry, and is a member of the North American
Free Trade Agreement (NAFTA) arbitration panel.
-56-
Bernard Reculeau. Corporate Director. Mr. Bernard Reculeau brings over 25 years of pharmaceutical
industry experience to Theratechnologies. From September 2006 to December 2009, he was the
President of CIS Bio International, a French company specializing in nuclear medicine and
biomedical technologies. Prior to joining CIS Bio International, Mr. Reculeau was Senior Vice
President Pharmaceutical Operations of Sanofi for the InterContinental Region. In his previous
functions, he was responsible for product development and commercialization in numerous countries
around the world. Mr. Reculeau has close to 25 years in pharmaceutical operations, notably in
France where he ran the pharmaceutical operations for Rhône-Poulenc and Rhône-Poulenc Rorer as well
as in other countries in the European Union. Mr. Reculeau retired in early 2010.
Jean-Denis Talon. Chairman of the Board, AXA Canada. Mr. Jean-Denis Talon had a successful career
with AXA Insurance over a period of more than 20 years, ultimately becoming President and Chief
Executive Officer. He is currently Chairman of the Board of AXA Canada. Mr. Talon is also former
President of the Financial Affairs Committee at the Insurance Bureau of Canada.
Luc Tanguay, M.Sc., CFA. Senior Executive Vice President and Chief Financial Officer of the
Company. Mr. Luc Tanguay has been active in the biotechnology industry for over 15 years. As a
member of our senior management since 1996, he has contributed to our growth by facilitating access
to public and private capital funding. A member of the board of directors since 1993, he has held
various management positions since joining the Company. Prior to joining us, Mr. Tanguay had a
career in investment banking at National Bank Financial Inc.
4.2 AUDIT COMMITTEE
Our board of directors has established an Audit Committee to review our annual financial statements
prior to their approval by the board of directors and also to perform other duties, as is described
in the Audit Committees charter adopted by the board of directors and attached hereto as Appendix
A.
As of November 30, 2010, the Audit Committee was composed of three members: Paul Pommier, its
Chair, Jean-Denis Talon and Gérald A. Lacoste. All three are independent and financially literate.
The details mentioned hereunder describe the education and experience of the Audit Committee
members that is relevant to the performance of their responsibilities, in particular any experience
in preparing, auditing, analyzing and evaluating financial statements.
Paul Pommier. Mr. Pommier holds an MBA degree and has more than 25 years of experience in the
financial field, notably in public and private company financings, as well as in merger and
acquisition activities. While acting as a director of Royal Aviation Inc., he was also a member of
its audit committee.
Jean-Denis Talon. Mr. Talon has more than 20 years of experience in the insurance field as a senior
officer. Mr. Talon acted as a member of the audit committee of AXA Canada from March 1995 to April
2008. He has been a member of the audit committee of InnovAssur since March 1999 and since November
1999, he has been acting as Chairman of its audit committee.
Gérald A. Lacoste. Mr. Lacoste has more than 30 years of experience in the fields of securities
regulation, corporate finance and corporate governance. Mr. Lacoste was president of the audit
committee of Amisco Ltd. from 2002 to 2009 and was also a member of the audit committee of Andromed
Inc. from 2004 to 2007. Mr. Lacoste has been a member of the audit committee of Génome Québec from
2006 to 2009.
Each member of the Audit Committee has acquired in-depth financial expertise giving each the
ability to read and understand a set of financial statements which presents the breadth and level
of
-57-
complexity of accounting issues that are generally comparable to those that can reasonably be
expected to be raised in the issuers financial statements.
External Auditors Service Fees
|
|
|
|
|
|
|
|
|
|
|
Financial Year Ended |
|
Financial Year Ended |
|
|
November 30, 2010 |
|
November 30, 2009 |
Audit Fees |
|
$ |
122,000 |
|
|
$ |
80,000 |
|
Audit-Related Fees (1) |
|
$ |
158,025 |
|
|
$ |
17,500 |
|
Tax Fees (2) |
|
$ |
56,600 |
|
|
$ |
39,626 |
|
All Other Fees |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit-related fees relate principally to services rendered in connection with
our annual financial statements and, for the financial year ended November 30, 2010, audit
fees paid to KPMG also included fees related to services rendered in connection with the audit
of IFRS adjustments and the translation of the financial statements to IFRS standards. |
|
(2) |
|
Tax fees relate to services rendered in connection with the preparation of corporate
tax returns and general tax advice. |
4.3 EXECUTIVE OFFICERS
The following table lists the names of all executive officers, their province or state and country
of residence, their office and the number of common shares and deferred share units beneficially
owned, directly or indirectly, by each of them or over which they exercised control or direction as
at February 21, 2011.
-58-
EXECUTIVE OFFICERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
Common Shares |
|
|
|
|
|
|
|
|
of the Company |
|
|
|
|
|
|
|
|
over which |
|
|
|
|
|
|
|
|
Control or |
|
Number of |
Name and Place of |
|
|
|
|
|
Direction is |
|
Deferred |
Residence |
|
Office |
|
Exercised |
|
Share Units |
Paul Pommier Québec, Canada |
|
Chairman of the Board |
|
|
190,100 |
|
|
|
20,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John-Michel T. Huss Québec, Canada |
|
President and Chief Executive Officer |
|
|
|
|
|
|
44,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luc Tanguay Québec, Canada |
|
Senior Executive Vice President and Chief Financial Officer |
|
|
83,000 |
|
|
|
27,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marie-Noël Colussi Québec, Canada |
|
Vice President, Finance |
|
|
10,075 |
|
|
|
3,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chantal Desrochers Québec, Canada |
|
Vice President, Business Development and Commercialization |
|
|
16,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrea Gilpin Québec, Canada |
|
Vice President, Investor Relations and Communications |
|
|
6,000 |
|
|
|
2,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jocelyn Lafond Québec, Canada |
|
Vice President, Legal Affairs, and Corporate Secretary |
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christian Marsolais Québec, Canada |
|
Vice President, Clinical Research and Medical Affairs |
|
|
8,597 |
|
|
|
6,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martine Ortega Québec, Canada |
|
Vice President, Compliance and Regulatory Affairs |
|
|
3,000 |
|
|
|
7,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pierre Perazzelli Québec, Canada |
|
Vice President, Pharmaceutical Development |
|
|
1,800 |
|
|
|
4,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Krishna Peri Québec, Canada |
|
Vice President, Research |
|
|
35,000 |
|
|
|
|
|
Biographical Notes of the Executive Officers
For the biographical notes of Paul Pommier, John-Michel T. Huss and Luc Tanguay, please refer to
Item 4 of this AIF.
Marie-Noël Colussi, CA. Vice President, Finance. Ms. Marie-Noël Colussi is a graduate of Université
du Québec à Montréal in business administration. Prior to joining us, Ms. Colussi worked for eight
years with KPMG, a major accounting firm. Ms. Colussi has experience in accounting, auditing,
control and taxation, particularly in research and development. She joined us in March 1997, and
prior to her appointment as Vice President, Finance in February 2002, she held the positions of
Director, Accounting and Internal Control and Controller.
Chantal Desrochers, B.Ph., MBA. Vice President, Business Development and Commercialization. Ms.
Chantal Desrochers obtained her degrees in pharmacy and business from the Université de Montréal.
She began her career at Schering-Plough in sales and ultimately became a Product Director. After
obtaining her M.B.A., Ms. Desrochers joined Bristol-Myers Squibb Company in Canada as Marketing
Director, Pharmaceuticals and became Vice President, Institutional Business in 1995. In 1997, Ms.
Desrochers was promoted to European Franchise Marketing Director, Cardiovascular, in
-59-
France where she contributed to the commercial development of cardiovascular products. This led to her
appointment as International Marketing Director, Cardiovascular, at Bristol-Myers Squibb in
Princeton, New Jersey. Prior to joining us in 2005, Ms. Desrochers offered consulting services in
business development and product development strategies.
Andrea Gilpin, Ph.D., MBA. Vice President, Investor Relations and Communications. Prior to joining
us in 2007, Dr. Gilpin was Director, Investor Relations at MethylGene Inc. and held various
positions at biotechnology companies. Dr Gilpin has a Ph.D. (Genetics/Biochemistry) from the
University of Toronto and an MBA from the Asper School of Business.
Jocelyn Lafond, LL.B., LL.M. Vice President, Legal Affairs, and Corporate Secretary. Mr. Lafond has
over 15 years of experience in the fields of corporate and securities law. Mr. Lafond holds a law
degree from Université Laval and a Masters Degree in Law from the University of Toronto. He has
been a member of the Barreau du Québec since 1992. Prior to joining us in 2007, Mr. Lafond was a
partner with the international law firm of Fasken Martineau DuMoulin LLP.
Christian Marsolais, Ph.D. Vice President, Clinical Research and Medical Affairs. Dr. Christian
Marsolais has over 15 years of experience in clinical research for large pharmaceutical companies,
such as Sandoz Canada Inc. and BioChem Therapeutics Inc. Before joining us in 2007, Dr. Marsolais
held various positions at Pfizer Global Pharmaceuticals, where he was appointed Director of Medical
Affairs, Therapeutic Areas, in 2004. In this position, Dr. Marsolais was responsible for the
clinical program and scientific initiatives development, as well as the integration of the
Scientific Affairs and Clinical Research for the oncology and HIV Franchise. Dr. Marsolais holds a
Ph.D. in Biochemistry from the Université de Montréal.
Martine Ortega, Pharm. D. Vice President, Compliance and Regulatory Affairs. Ms. Martine Ortega
joined us in 2006. A graduate in pharmacy from the Université dAix-Marseille II, she holds a
postdoctoral degree in dermatology. Ms. Ortega has close to 20 years of experience in the
pharmaceutical industry, where she has gained knowledge of the drug development process. During her
career, she has acquired broad expertise in GLP, GCP and GMP practices and procedures as well as in
computerized systems validation. She is also experienced in relations with US, European and
Canadian regulatory agencies. Prior to joining us, she held senior management positions at Ventana
Clinical Research Corporation, MDS Pharma Services and Sandoz Canada Inc.
Pierre Perazzelli, B. Sc. Vice President, Pharmaceutical Development. A graduate of Université
Laval, Mr. Perazzelli has been working in the pharmaceutical manufacturing industry for over 20
years. Throughout his career, he has held various positions in large pharmaceutical companies,
including Bristol Myers Squibb and Abbott Laboratories, Ltd. He was Director of the LAB Laboratory,
a research centre specializing in pharmaceutical formulation. He is also experienced in the
production of generic drugs. Mr. Perazzelli joined us in May 2000.
Krishna Peri, Ph.D. Vice President, Research. Co-inventor of the ExoPep technology and a founder
of Pharma-G, Dr. Krishna Peri holds a Ph.D. in biochemistry from the University of Saskatchewan,
Canada. He pursued post-doctoral research in cancer as an NCI fellow at McGill University and at
Ste. Justine Hospital Research Center. After our acquisition of Pharma-G in 2000, he served as
director of discovery research, and was subsequently appointed Vice-President, Research, in June
2004.
-60-
4.4 DECLARATION OF THE DIRECTORS AND OFFICERS ANTECEDENTS
Except as described below, to our knowledge, no director or executive officer (a) is, as at the
date of this Annual Information Form, or has been within the ten years before the date of this
Annual Information Form, a director or executive officer of any company (including us) that, while
that person was acting in that capacity, (i) was the subject of a cease trade or similar order or
an order that denied the relevant company access to any exemption under securities legislation, for
a period of more than thirty consecutive days; (ii) was subject to an event that resulted, after
the director or executive officer ceased to be a director or executive officer, in the company
being the subject of a cease trade or similar order or an order that denied the relevant company
access to any exemption under securities legislation, for a period of more than thirty consecutive
days; or (iii) within a year of that person ceasing to act in that capacity, became bankrupt, made
a proposal under any legislation relating to bankruptcy or insolvency or was subject to or
instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver
manager or trustee appointed to hold its assets; or (b) has, within the ten years before the date
of this Annual Information Form, become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or
compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold his
assets.
Paul Pommier was a member of the board of directors of Royal Aviation Inc. from September 1996
until it was acquired by Canada 3000 Inc. in March 2001. Subsequently, at the end of 2001, Canada
3000 Inc. and its subsidiaries, including Royal Aviation Inc., made assignments in bankruptcy under
Item 49 of the Bankruptcy and Insolvency Act (R.S. 1985, c. B-3), or Bankruptcy Act.
Jean-Denis Talon was a member of the board of directors of Toptent Inc., or Toptent, from August 1,
2007 to November 26, 2009. On December 3, 2009, Toptent filed a notice of intention to make a
proposal under the Bankruptcy Act. Subsequently, on May 7, 2010, Toptent filed a proposal under the
Bankruptcy Act. The proposal was accepted by Toptents creditors on May 20, 2010.
Luc Tanguay was a member of the board of directors of Ambrilia Biopharma Inc., or Ambrilia, from
August 22, 2006 to March 30, 2010. On July 31, 2009, Ambrilia obtained court protection from its
creditors under the Companies Creditors Arrangement Act (Canada). The purpose of the order issued
by the court granting Ambrilia protection from its creditors was to provide Ambrilia and its
subsidiaries the opportunity to restructure its affairs. On July 31, 2009, the TSX halted the
trading of Ambrilias shares pending its review of Ambrilias meeting the requirements for
continuous listing. On January 31, 2011, TSX determined to delist the common shares of Ambrilia at
the close of market on March 4, 2011 for failure to meet the continued listing requirements of TSX.
The common shares will remain suspended from trading.
4.5 SECURITIES HELD BY THE DIRECTORS AND EXECUTIVE OFFICERS
As at February 21, 2011, the total number of common shares (the only securities carrying a voting
right) held by our directors and executive officers amounted to 723,972, which represented 1.20% of
our outstanding common shares.
-61-
ITEM 5 INTERESTS OF EXPERTS
KPMG LLP, our auditors, is the only person or company who is named as having prepared or certified
a statement, report or evaluation, included or mentioned in a filing under securities regulations
during our most recently completed financial year.
KPMG LLP and its partners are independent in accordance with the auditors rules of professional
conduct in the jurisdiction of Québec.
-62-
ITEM 6 SECURITIES OF THE COMPANY
6.1 AUTHORIZED SHARE CAPITAL
We are authorized to issue an unlimited number of common shares and an unlimited number of
preferred shares issuable in series.
Subject to the priority rights of holders of preferred shares, holders of common shares are
entitled to any dividend declared by the board of directors, to one vote per share at meetings of
our shareholders and, in the event of our liquidation or dissolution, to participate in the
distribution of the assets.
Preferred shares carry no voting rights. Preferred shares may be issued at any time in one or more
series. Our articles of incorporation give our board of directors the power to fix the number of
preferred shares and the consideration per share, as well as to determine the provisions attached
to the preferred shares of each series (including dividends, redemption and conversion rights, if
any). The shares of every series of preferred shares will have priority over all our other shares,
including common shares, with respect to the payment of dividends and return of capital in the
event of our liquidation or dissolution.
The common shares issued represent the total voting rights pertaining to our securities.
6.2 DIVIDEND POLICY
We have never declared or paid cash dividends on our common shares and do not anticipate paying any
cash dividends on our common shares in the foreseeable future. We presently intend to retain future
earnings, if any, to finance the expansion and growth of our business. Any future determination to
pay dividends will be at the discretion of our board of directors and will depend on our financial
condition, results of operations, capital requirements and other factors the board of directors
deems relevant. In addition, the terms of any future debt or credit facility may preclude us from
paying dividends.
6.3 TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar is Computershare Trust Company of Canada which holds, at its
Montreal office, the registers related to our common shares, shareholders and transfers.
-63-
ITEM 7 MARKET FOR SECURITIES
7.1 TRADING PRICE AND VOLUME
The following table sets forth the high and low closing sale prices for our common shares for the
periods indicated, as reported on the TSX. However, you should not view this presentation as an
indication that the market price of our common shares will continue at such levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price |
|
|
Period |
|
$ High |
|
$ Low |
|
Volume |
February 1
to February 18, 2011 |
|
$ |
5.88 |
|
|
$ |
5.01 |
|
|
|
4,371,300 |
|
January 2011 |
|
$ |
5.90 |
|
|
$ |
5.43 |
|
|
|
3,319,500 |
|
December 2010 |
|
$ |
5.69 |
|
|
$ |
5.27 |
|
|
|
4,038,000 |
|
November 2010 |
|
$ |
5.80 |
|
|
$ |
4.91 |
|
|
|
8,127,400 |
|
October 2010 |
|
$ |
5.15 |
|
|
$ |
4.44 |
|
|
|
2,944,000 |
|
September 2010 |
|
$ |
4.98 |
|
|
$ |
4.78 |
|
|
|
1,230,300 |
|
August 2010 |
|
$ |
5.08 |
|
|
$ |
4.75 |
|
|
|
1,934,900 |
|
July 2010 |
|
$ |
5.48 |
|
|
$ |
4.82 |
|
|
|
3,795,500 |
|
June 2010 |
|
$ |
5.59 |
|
|
$ |
4.61 |
|
|
|
6,188,600 |
|
May 2010 |
|
$ |
5.02 |
|
|
$ |
2.09 |
|
|
|
11,593,700 |
|
April 2010 |
|
$ |
5.20 |
|
|
$ |
4.82 |
|
|
|
1,960,000 |
|
March 2010 |
|
$ |
5.50 |
|
|
$ |
4.80 |
|
|
|
2,612,100 |
|
February 2010 |
|
$ |
5.03 |
|
|
$ |
4.67 |
|
|
|
2,205,500 |
|
January 2010 |
|
$ |
5.42 |
|
|
$ |
4.28 |
|
|
|
4,505,000 |
|
December 2009 |
|
$ |
4.45 |
|
|
$ |
3.55 |
|
|
|
5,517,800 |
|
7.2 PRIOR SALES
The following table summarizes the distribution of securities other than our common shares that we
issued during the most recently completed financial year, identifying the type of security, the
price per security, the number of securities issued, and the date on which the securities were
issued.
|
|
|
|
|
|
|
|
|
|
|
|
|
Date |
|
Type of Security |
|
Price per Security |
|
Number of Securities |
December 8, 2009 |
|
Options |
|
$ |
3.84 |
|
|
|
265,000 |
|
June 8, 2010 |
|
Options |
|
$ |
4.75 |
|
|
|
70,000 |
|
-64-
ITEM 8 LEGAL PROCEEDINGS
On July 26, 2010, we received a motion for authorization to institute a class action lawsuit
against us, our chairman and our former chief executive officer. This motion was filed in the
Superior Court of Québec, district of Montreal. The applicant is seeking to initiate a class action
suit and to certify and represent a class of persons who were shareholders at May 21, 2010 and who
sold their common shares on May 25 or 26, 2010. This applicant alleges that we did not comply with
our continuous disclosure obligations as a reporting issuer by failing to disclose certain alleged
adverse effects relating to the administration of EGRIFTATM. We are of the view that the
allegations contained in the motion are entirely without merit and intend to take all appropriate
actions to vigorously defend our position. The Motion has not yet been heard by the Superior Court
of Québec and no date has been set for the hearing. We have subscribed for insurance covering our
potential liability and the potential liability of our directors and officers in the performance of
all their duties for us subject to a $200,000 deductible and standard terms, conditions and
exclusions.
We are not otherwise currently subject to any material legal proceedings.
-65-
ITEM 9 MATERIAL CONTRACTS
Licensing Agreements. We have executed commercialization agreements with third parties for the
exclusive distribution rights to EGRIFTATM for the reduction of excess abdominal fact in
HIV-infected patients with lipodystrophy for (i) the United States; (ii) Latin America, Africa and
the Middle East; and (iii) Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian
countries. For a description of these agreements, see Item 2.5.
Supply Agreements. We have executed five supply agreements with Bachem, Draxis, Becton Dickinson,
Hospira and ABAR. For a description of these agreements, see Item 2.7.
Shareholder Rights Plan Agreement. On February 10, 2010, we entered into a shareholder rights plan
agreement, or Rights Plan. The Rights Plan entitles a holder of rights (other than the Acquiring
Person, as defined below, or any affiliate or associate of an Acquiring Person or any person acting
jointly or in concert with an Acquiring Person or any affiliate or associate of an Acquiring
Person) to purchase to our common shares at a discount of 50% to the market price upon a person
becoming an Acquiring Person, subject to certain exceptions and the terms and conditions set out
in the Rights Plan. An Acquiring Person is defined in the Rights Plan as a beneficial owner of
20% or more of our common shares. The Rights Plan will expire at the close of our annual meeting of
shareholders in 2013.
In order to implement the Rights Plan, we issued one right in respect of each common share
outstanding as of 6:00 p.m. (Montreal time) on February 9, 2010, the Effective Date. One right
will also be issued and attached to each subsequently issued common share. The rights will separate
and trade separately from the common shares to which they are attached and will become exercisable
after the Separation Time, as defined below:
The Separation time is the close of business on the tenth business day following the earliest of:
|
(a) |
|
the date of the first public announcement made by us or an Acquiring Person that a
person has become an Acquiring Person; |
|
|
(b) |
|
the date of the commencement of, or first public announcement of the intent of any
Person to commence, a take-over bid (other than a Permitted Bid (as defined in the Rights
Plan) or a Competing Permitted Bid (as defined in the Rights Plan)) by any person for our
common shares; |
|
|
(c) |
|
the date upon which a Permitted Bid or Competing Permitted Bid ceases to be such; or |
|
|
(d) |
|
such later date as may be determined by the board of directors. |
After the time at which a person becomes an Acquiring Person, and subject to the terms and
conditions set out in the shareholder rights plan agreement, each right would, upon exercise,
entitle a rights holder, other than the Acquiring Person and related persons, to purchase common
shares at a 50% discount to the market price at the time.
Under the Rights Plan, a Permitted Bid is a bid made to all holders of the common shares and
which is open for acceptance for not less than 60 days. If at the end of 60 days at least 50% of
the outstanding common shares, other than those owned by the offeror and certain related parties,
have been tendered, the offeror may take up and pay for the common shares but must extend the bid
for a further 10 days to allow other shareholders to tender.
-66-
Lease Agreement. In October 2009, we entered into a new lease agreement with Société de
portefeuille immobilier GE Q-Tech inc. for the renewal of our lease for our offices and
laboratories located in Montréal, Québec. The new lease became effective on May 1, 2010 and will
expire on April 30, 2021. Under the terms of this new lease agreement, we have two five year
renewal options. If exercised, the first renewal option will start on May 1, 2021 and expire on
April 30, 2026 and the second renewal option, if exercised, will start on May 1, 2026 and expire on
April 30, 2031.
-67-
ITEM 10 ADDITIONAL INFORMATION
Additional information with respect to our company, including directors and officers
compensation, principal holders of our securities and securities authorized for issuance under
equity compensation plans, where applicable, is contained in our Management Proxy Circular for our
most recent annual and special meeting of shareholders. Our financial information is provided in
our comparative financial statements and Management Discussion & Analysis for our financial year
ended November 30, 2010.
Additional information regarding our company is available on SEDAR at www.sedar.com or upon request
addressed to Jocelyn Lafond, Corporate Secretary, at 2310 Alfred Nobel Boulevard, Montreal, Québec,
Canada H4S 2B4. Except when our securities are in the process of distribution pursuant to a
prospectus, we may charge reasonable fees if the request is from a person who does not hold any of
our securities.
-68-
APPENDIX A AUDIT COMMITTEE CHARTER
The Audit Committee (the Committee) is responsible for assisting the Companys Board of
Directors (the Board) in overseeing the following:
|
A. |
|
the integrity of the Companys financial statements and related information; |
|
|
B. |
|
the internal control systems of the Company; |
|
|
C. |
|
the appointment and performance of the external auditor; and |
|
|
D. |
|
the supervision of the Companys Risk Management. |
II. |
|
Obligations and Duties |
The Committee carries out the duties usually entrusted to an audit committee and any other
duty assigned from time to time by the Board. Management has the responsibility to ensure
the integrity of the financial information and the effectiveness of the Companys internal
controls. The external auditor has the responsibility to verify and certify the accurate
presentation of the Companys financial statements; at the same time evaluating the internal
control process to determine the nature, extent and chronology of the auditing procedures
used. The Committee has the responsibility to supervise the participants involved in the
preparation process of the financial information and to report on this to the Board.
Specifically, the Committee is charged with the following obligations and duties:
|
A. |
|
Integrity of the Companys Financial Statements and Related Information |
|
1. |
|
Review annual and quarterly consolidated financial statements and
all financial information legally required to be disclosed by the Company, i.e.
financial information contained in the Management Discussion and Analysis
report, the annual information form and the press releases, as the case may be,
discuss such with management and the external auditor, and suggest
recommendations to the Board, as the case may be. |
|
|
2. |
|
Approve the interim Financial Statements, the interim Management
Discussion and Analysis reports and all supplements to these Management
Discussion and Analysis reports which have to be filed with regulatory
authorities. |
|
|
3. |
|
On a periodic basis, review and discuss with management and the
external auditor the following: |
|
a. |
|
major issues regarding accounting principles and
financial statement presentations, including any significant changes in
the Companys selection or application of accounting principles, and
major issues as to the adequacy of the Companys internal controls and
any special audit steps adopted in light of material control
deficiencies; |
|
|
b. |
|
the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures, on the financial
statements of the Company; and |
|
|
c. |
|
the type and presentation of information to be
included in press releases dealing with financial results (paying
particular attention to any use of pro-forma information or information
adjusted by means of non-generally accepted accounting principles). |
-69-
|
4. |
|
Review and discuss reports from the external auditor on: |
|
a. |
|
all critical accounting policies and practices used
by the Company; and |
|
|
b. |
|
all material alternative treatments of financial
information within generally accepted accounting principles that have
been discussed with management, including the ramifications of the use of
such alternate treatments and disclosures and the treatment preferred by
the external auditor. |
|
B. |
|
Supervision of the Companys Internal Control Systems |
|
1. |
|
Review and discuss with management and with the external auditor
present reports and, when appropriate, provide recommendations to the Board on
the following: |
|
a. |
|
actual financial data compared with budgeted data; |
|
|
b. |
|
the Companys internal control system; |
|
|
c. |
|
the relationship of the Committee with the
management and audit committees of the Companys consolidated
subsidiaries. With respect to the subsidiaries, the Committee must: |
|
|
|
obtain precisions as to the mandate of the audit committees; |
|
|
|
|
enquire about internal controls and study related risks; |
|
|
|
|
obtain the external auditors report to the audit committees on
the planning of external auditing; |
|
|
|
|
obtain the external auditors report to the audit committees on
the auditing results; |
|
|
|
|
obtain copy of the minutes of the audit committees meetings;
and |
|
|
|
|
ensure that the critical accounting policies and practices are
identical to the Companys. |
|
2. |
|
Study the feasibility of implementing an internal auditing system
and when implemented, establish its responsibilities and supervise its work. |
|
|
3. |
|
Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and procedures for the confidential, anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters. |
|
C. |
|
Appointment and Performance Supervision of the External Auditor |
|
1. |
|
Provide recommendations to the Board on the selection of the
external auditor to be appointed by the shareholders. |
|
|
2. |
|
Approve in advance and recommend to the Board the external
auditors remuneration and more specifically fees and terms of all audit, review
or certification services to be provided by the external auditor to the Company
and any consolidated subsidiary. |
|
|
3. |
|
Supervise the performance of the external auditor in charge of
preparing or issuing an audit report or performing other audit services or
certification services for the Company or any consolidated subsidiary of the
Company, |
-70-
|
|
|
where required, and review all related questions as to the terms of its
mission and the revision of its mission. |
|
4. |
|
Pre-approve all engagements for permitted non-audit services
provided by the external auditor to the Company and any consolidated subsidiary,
and to this effect and at its convenience, establish policies and procedures for
the engagement of the external auditor to provide to the Company and any
consolidated subsidiary permitted non-audit services, which shall include
approval in advance by the Committee of all audit/review services and permitted
non-audit services to be provided to the Company and any consolidated subsidiary
by the external auditor. |
|
|
5. |
|
At least annually, consider, assess and report to the Board on: |
|
a. |
|
the independence of the external auditor, including
whether the external auditors performance of permitted non-audit
services is compatible with the external auditors independence; |
|
|
b. |
|
the obtaining from the external auditor of a
written statement i) describing all relationships between the external
auditor and the Company; ii) assuring that lead audit partner rotation is
carried out, as required by law; and iii) describing any other
relationship that may adversely affect the independence of the external
auditor; and |
|
|
c. |
|
the evaluation of the lead audit partner, taking
into account the opinions of management and the internal auditor. |
|
6. |
|
At least annually, obtain and review a report by the external
auditor describing: |
|
a. |
|
the external auditors internal quality-control
procedures; and |
|
|
b. |
|
any material issues raised by the most recent
internal quality-control review (or peer review) of the external
auditors firm, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years, with respect
to one or more independent audits carried out by the external auditors
firm, and any steps taken to deal with any such issues. |
|
7. |
|
Resolve any disagreement between management and the external
auditor regarding financial reporting. |
|
|
8. |
|
Review the audit process with the external auditor. |
|
|
9. |
|
Review and discuss with the Chief Executive Officer and Chief
Financial Officer of the Company the process for the certifications to be
provided in the Companys public disclosure documents. |
|
|
10. |
|
Meet periodically with the external auditor in the absence of
management. |
|
|
11. |
|
Establish procedures with respect to hiring the external
auditors employees and former employees. |
|
D. |
|
Supervision of the Companys Risk Management |
Review, report and, where appropriate, provide recommendations to the Board on the
following:
|
1. |
|
the Companys processes for identifying, assessing and managing
risk; |
|
|
2. |
|
the Companys major financial risk exposures and the steps the
Company has taken to monitor and control such exposures; |
-71-
|
3. |
|
the Companys insurance portfolio and the adequacy of the
coverage; and |
|
|
4. |
|
the Companys investment policy. |
In discharging its duties and responsibilities, the Committee is empowered to retain
external legal counsel or other external advisors, as appropriate. The Company shall provide
the necessary funds to secure the services of such advisors.
IV. |
|
Composition of the Committee |
The Committee is composed of any number of Directors, but no less than
three, as may be determined by the Board from time to time by
resolution. Each member of the Committee shall be independent from the
Company and is financially literate, as determined by the Board and in
conformity with applicable laws, rules and regulations.
Committee members are appointed by Board resolution to carry out their mandate extending
from the date of the appointment to the next annual general meeting of the shareholders or
until their successors are so appointed.
The Board may fill vacancies at any time by resolution. Subject to
the constitution of the quorum, the Committees members can continue
to act even if there is one or many vacancies on the Committee.
The Board appoints the Committee Chairman who will call and chair the meetings. The Chairman
reports to the Board the deliberations of the Committee and its recommendations.
Unless otherwise determined by resolution of the Board, the Secretary of the Company shall
act as Committee Secretary. The Secretary must attend Committee meetings and prepare the
minutes. He/she must provide notification of meetings as directed by the Committee Chairman.
The Secretary is the guardian of the Committees records, books and archives.
The Committee establishes its own procedures as to how meetings are called and conducted.
Unless it is otherwise decided, the Committee shall meet privately and independently from
Management at each regularly scheduled meeting. In the absence of the regularly appointed
Chairman, the meeting shall be chaired by another Committee member selected among attending
participants and appointed accordingly. In the absence of the regularly appointed Secretary,
Committee members shall designate someone to carry out this duty.
The Committee shall meet at least four times a year with management and the external
auditor, and at least once a year, separately in executive session in the absence of
management and the external auditor. At least once a year, the Committee invites the Chief
-72-
Financial Officer of each subsidiary to present the financial information and internal
control systems related to such subsidiary.
Unless the Board otherwise specifies by resolution, two Committee
members shall constitute an appropriate quorum for deliberation of
items on the agenda. During meetings, decisions are reached by a
majority of votes from Committee members, unless the quorum is of two
members, in which case decisions are made by consensus of opinion.
The Committee keeps records that are deemed necessary of its
deliberations and reports regularly to the Board on its activities
and recommendations.
This charter was adopted by the Directors at its May 3, 2004 Board
meeting. It was amended by the Directors during the April 13, 2005
and February 8, 2006 Board meetings.
-73-
EX-4.2
Exhibit 4.2
Consolidated Financial Statements of
THERATECHNOLOGIES INC.
Years ended November 30, 2010 and 2009 and as at December 1, 2008
|
|
|
|
|
KPMG LLP
|
|
Telephone
|
|
(514) 840-2100 |
Chartered Accountants
|
|
Fax
|
|
(514) 840-2187 |
600 de Maisonneuve Blvd. West
|
|
Internet
|
|
www.kpmg.ca |
Suite 1500 |
|
|
|
|
Tour KPMG |
|
|
|
|
Montréal (Québec) H3A 03A |
|
|
|
|
AUDITORS REPORT TO THE SHAREHOLDERS
We have audited the consolidated statements of financial position of Theratechnologies Inc. as
at November 30, 2010 and 2009 and December 1, 2008, and the consolidated statements of
comprehensive income, statements of changes in equity and statements of cash flows for the years
ended November 30, 2010 and 2009. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects,
the financial position of the Company as at November 30, 2010 and 2009 and December 1, 2008, and
its financial performance and its cash flows for the years ended November 30, 2010 and 2009 in
accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
Chartered Accountants
Montréal, Canada
February 8, 2011
*CA Auditor permit no 14553
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
THERATECHNOLOGIES INC.
Consolidated Financial Statements
Years ended November 30, 2010 and 2009 and as at December 1, 2008
Financial Statements
|
|
|
|
|
Consolidated Statement of Financial Position |
|
|
1 |
|
Consolidated Statement of Comprehensive Income |
|
|
2 |
|
Consolidated Statement of Changes in Equity |
|
|
3 |
|
Consolidated Statement of Cash Flows |
|
|
4 |
|
Notes to the Consolidated Financial Statements |
|
|
5 |
|
THERATECHNOLOGIES INC.
Consolidated Statement of Financial Position
As at November 30, 2010 and 2009 and December 1, 2008
(in thousands of Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
December 1, |
|
|
|
Note |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
26,649 |
|
|
|
1,519 |
|
|
|
133 |
|
Bonds |
|
|
8 |
|
|
|
1,860 |
|
|
|
10,036 |
|
|
|
10,955 |
|
Trade and other receivables |
|
|
9 |
|
|
|
161 |
|
|
|
375 |
|
|
|
610 |
|
Tax credits and grants receivable |
|
|
10 |
|
|
|
332 |
|
|
|
1,333 |
|
|
|
1,451 |
|
Inventories |
|
|
11 |
|
|
|
4,317 |
|
|
|
2,225 |
|
|
|
|
|
Prepaid expenses |
|
|
|
|
|
|
1,231 |
|
|
|
630 |
|
|
|
739 |
|
|
Total current assets |
|
|
|
|
|
|
34,550 |
|
|
|
16,118 |
|
|
|
13,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
8 |
|
|
|
36,041 |
|
|
|
51,807 |
|
|
|
35,249 |
|
Property and equipment |
|
|
12 |
|
|
|
1,060 |
|
|
|
1,229 |
|
|
|
1,299 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,776 |
|
|
Total non-current assets |
|
|
|
|
|
|
37,101 |
|
|
|
53,036 |
|
|
|
39,324 |
|
|
Total assets |
|
|
|
|
|
|
71,651 |
|
|
|
69,154 |
|
|
|
53,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
13 |
|
|
|
4,977 |
|
|
|
5,568 |
|
|
|
6,865 |
|
Current portion of deferred revenue |
|
|
4 |
|
|
|
6,847 |
|
|
|
6,847 |
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
11,824 |
|
|
|
12,415 |
|
|
|
6,865 |
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
14 |
|
|
|
325 |
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
4 |
|
|
|
6,846 |
|
|
|
13,691 |
|
|
|
|
|
|
Total non-current liabilities |
|
|
|
|
|
|
7,171 |
|
|
|
13,691 |
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
18,995 |
|
|
|
26,106 |
|
|
|
6,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
15 |
|
|
|
279,398 |
|
|
|
279,169 |
|
|
|
269,219 |
|
Contributed surplus |
|
|
|
|
|
|
7,808 |
|
|
|
6,757 |
|
|
|
5,760 |
|
Deficit |
|
|
|
|
|
|
(235,116 |
) |
|
|
(244,160 |
) |
|
|
(229,004 |
) |
Accumulated other comprehensive income |
|
|
|
|
|
|
566 |
|
|
|
1,282 |
|
|
|
372 |
|
|
Total equity |
|
|
|
|
|
|
52,656 |
|
|
|
43,048 |
|
|
|
46,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent liability |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent events |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
|
|
|
|
|
71,651 |
|
|
|
69,154 |
|
|
|
53,212 |
|
|
See accompanying notes to the consolidated financial statements.
|
|
|
On behalf of the Board, |
|
|
|
|
|
(signed) Paul Pommier
|
|
(signed) Jean-Denis Talon |
|
|
|
Director
|
|
Director |
1
THERATECHNOLOGIES INC.
Consolidated Statement of Comprehensive Income
Years ended November 30, 2010 and 2009
(in thousands of Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
Note |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Research services: |
|
|
|
|
|
|
|
|
|
|
|
|
Milestone payments |
|
|
4 |
|
|
|
25,000 |
|
|
|
10,884 |
|
Upfront payments and initial technology access fees |
|
|
4 |
|
|
|
6,846 |
|
|
|
6,560 |
|
Royalties and license fees |
|
|
|
|
|
|
22 |
|
|
|
24 |
|
|
Total revenue |
|
|
|
|
|
|
31,868 |
|
|
|
17,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
469 |
|
|
|
|
|
Research and development expenses, net of tax credits of $934 (2009 - $1,795) |
|
|
10 |
|
|
|
14,064 |
|
|
|
20,810 |
|
Selling and market development expenses |
|
|
6 |
|
|
|
2,670 |
|
|
|
6,862 |
|
General and administrative expenses |
|
|
|
|
|
|
8,002 |
|
|
|
6,543 |
|
|
Total operating expenses |
|
|
|
|
|
|
25,205 |
|
|
|
34,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results from operating activities |
|
|
|
|
|
|
6,663 |
|
|
|
(16,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
7 |
|
|
|
1,888 |
|
|
|
2,252 |
|
Finance costs |
|
|
7 |
|
|
|
493 |
|
|
|
(661 |
) |
|
Total net financial income |
|
|
|
|
|
|
2,381 |
|
|
|
1,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) before income taxes |
|
|
|
|
|
|
9,044 |
|
|
|
(15,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
16 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) |
|
|
|
|
|
|
8,930 |
|
|
|
(15,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value available-for-sale financial assets, net of tax |
|
|
|
|
|
|
(390 |
) |
|
|
1,039 |
|
Net change in fair value available-for-sale financial assets transferred to net profit (loss),
net of tax |
|
|
|
|
|
|
(326 |
) |
|
|
(129 |
) |
|
|
|
|
|
|
|
|
(716 |
) |
|
|
910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) for the year |
|
|
|
|
|
|
8,214 |
|
|
|
(14,246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share |
|
|
15 |
|
|
|
0.15 |
|
|
|
(0.25 |
) |
|
See accompanying notes to the consolidated financial statements.
2
THERATECHNOLOGIES INC.
Consolidated Statement of Changes in Equity
Years ended November 30, 2010 and 2009
(in thousands of Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or losses on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
Contributed |
|
|
financial |
|
|
|
|
|
|
|
|
|
Note |
|
|
Number |
|
|
Dollars |
|
|
surplus |
|
|
assets (i) |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Balance as at December 1, 2008 |
|
|
|
|
|
|
58,215,090 |
|
|
|
269,219 |
|
|
|
5,760 |
|
|
|
372 |
|
|
|
(229,004 |
) |
|
|
46,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) for the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,156 |
) |
|
|
(15,156 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of available-for-sale financial assets, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,039 |
|
|
|
|
|
|
|
1,039 |
|
Net change in fair value of available-for-sale financial assets transferred to net profit (loss), |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129 |
) |
|
|
|
|
|
|
(129 |
) |
|
Total comprehensive income (loss) for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
910 |
|
|
|
(15,156 |
) |
|
|
(14,246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners, recorded directly in equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of common shares |
|
|
15 |
(i) |
|
|
2,214,303 |
|
|
|
9,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,950 |
|
Share-based compensation for stock option plan |
|
15 (iv) |
|
|
|
|
|
|
|
|
|
|
997 |
|
|
|
|
|
|
|
|
|
|
|
997 |
|
|
Total contributions by owners |
|
|
|
|
|
|
2,214,303 |
|
|
|
9,950 |
|
|
|
997 |
|
|
|
|
|
|
|
|
|
|
|
10,947 |
|
|
Balance as at November 30, 2009 |
|
|
|
|
|
|
60,429,393 |
|
|
|
279,169 |
|
|
|
6,757 |
|
|
|
1,282 |
|
|
|
(244,160 |
) |
|
|
43,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) for the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,930 |
|
|
|
8,930 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of available-for-sale financial assets, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(390 |
) |
|
|
|
|
|
|
(390 |
) |
Net change in fair value of available-for-sale financial assets transferred to net profit (loss),
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(326 |
) |
|
|
|
|
|
|
(326 |
) |
|
Total comprehensive income (loss) for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(716 |
) |
|
|
8,930 |
|
|
|
8,214 |
|
|
Transactions with owners, recorded directly in equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of common shares |
|
|
15 |
(i) |
|
|
2,880 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Income tax related to share issue costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114 |
|
|
|
114 |
|
Share-based compensation plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation for stock option plan |
|
15 (iv) |
|
|
|
|
|
|
|
|
|
|
1,133 |
|
|
|
|
|
|
|
|
|
|
|
1,133 |
|
Exercise of stock options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary consideration |
|
15 (iv) |
|
|
80,491 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132 |
|
Attributed value |
|
15 (iv) |
|
|
|
|
|
|
82 |
|
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contributions by owners |
|
|
|
|
|
|
83,371 |
|
|
|
229 |
|
|
|
1,051 |
|
|
|
|
|
|
|
114 |
|
|
|
1,394 |
|
|
Balance as at November 30, 2010 |
|
|
|
|
|
|
60,512,764 |
|
|
|
279,398 |
|
|
|
7,808 |
|
|
|
566 |
|
|
|
(235,116 |
) |
|
|
52,656 |
|
|
|
|
|
(i) |
|
Accumulated other comprehensive income. |
See accompanying notes to the consolidated financial statements.
3
THERATECHNOLOGIES INC.
Consolidated Statement of Cash Flows
Years ended November 30, 2010 and 2009
(in thousands of Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
Note |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) |
|
|
|
|
|
|
8,930 |
|
|
|
(15,156 |
) |
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment |
|
|
12 |
|
|
|
466 |
|
|
|
612 |
|
Share-based compensation |
|
|
|
|
|
|
1,133 |
|
|
|
997 |
|
Income tax expense |
|
|
|
|
|
|
114 |
|
|
|
|
|
Write-down of inventories |
|
|
11 |
|
|
|
192 |
|
|
|
|
|
Lease inducements and amortization |
|
|
17 |
|
|
|
325 |
|
|
|
|
|
|
Operating activities before changes in operating assets and liabilities |
|
|
|
|
|
|
11,160 |
|
|
|
(13,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in accrued interest income on bonds |
|
|
|
|
|
|
728 |
|
|
|
(923 |
) |
Change in trade and other receivables |
|
|
|
|
|
|
214 |
|
|
|
235 |
|
Change in tax credits and grants receivable |
|
|
|
|
|
|
1,001 |
|
|
|
118 |
|
Change in inventories |
|
|
|
|
|
|
(2,284 |
) |
|
|
(2,225 |
) |
Change in prepaid expenses |
|
|
|
|
|
|
(601 |
) |
|
|
109 |
|
Change in other assets |
|
|
|
|
|
|
|
|
|
|
2,776 |
|
Change in accounts payable and accrued liabilities |
|
|
|
|
|
|
(473 |
) |
|
|
(1,424 |
) |
Change in deferred revenue |
|
|
|
|
|
|
(6,845 |
) |
|
|
20,538 |
|
|
|
|
|
|
|
|
|
(8,260 |
) |
|
|
19,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
2,900 |
|
|
|
5,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issue of share capital |
|
|
|
|
|
|
15 |
|
|
|
9,950 |
|
Proceeds from exercise of stock options |
|
|
15 |
|
|
|
132 |
|
|
|
|
|
Share issue costs |
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
Cash flows from financing activities |
|
|
|
|
|
|
147 |
|
|
|
9,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
|
12 |
|
|
|
(415 |
) |
|
|
(407 |
) |
Proceeds from sale of bonds |
|
|
|
|
|
|
22,498 |
|
|
|
15,305 |
|
Acquisition of bonds |
|
|
|
|
|
|
|
|
|
|
(29,111 |
) |
|
Cash flows from (used in) investing activities |
|
|
|
|
|
|
22,083 |
|
|
|
(14,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
|
|
|
|
|
25,130 |
|
|
|
1,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash as at December 1 |
|
|
|
|
|
|
1,519 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash as at November 30 |
|
|
|
|
|
|
26,649 |
|
|
|
1,519 |
|
|
See note 19 for supplemental cash flow information.
See accompanying notes to the consolidated financial statements.
4
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
1. |
|
Reporting entity: |
|
|
|
Theratechnologies Inc. is a specialty pharmaceutical company that discovers and develops
innovative therapeutic peptide products with an emphasis on growth hormone releasing factor
peptides. Theratechnologies Inc. is leveraging its expertise in the field of metabolism to
discover and develop products in specialty markets. Its commercialization strategy is to retain
all or a significant portion of the commercial rights to its products. Its first product,
EGRIFTATM (tesamorelin for injection), was approved by the United States
Food and Drug Administration (FDA) in November 2010. To date,
EGRIFTATM is the only approved therapy for the reduction of excess
abdominal fat in HIV-infected patients with lipodystrophy. |
|
|
|
The consolidated financial statements include the accounts of Theratechnologies Inc. and its
wholly-owned subsidiaries (together referred to as the Company and individually as the
subsidiaries of the Company). |
|
|
|
Theratechnologies Inc. is incorporated under Part 1A of the Québec Companies Act and is
domiciled in Quebec, Canada. The Company is located at 2310 boul. Alfred-Nobel, Montreal,
Quebec, H4S 2B4. |
|
2. |
|
Basis of preparation: |
|
(a) |
|
Statement of compliance: |
|
|
|
|
The consolidated financial statements of the Company have been prepared in accordance with
IFRSs as issued by the International Accounting Standards Board (IASB). These are the
Companys first consolidated financial statements prepared in accordance with International
Financial Reporting Standards (IFRSs). The Company has applied IFRS 1,
First-time Adoption of International Financial Reporting Standards, using December 1, 2008
as the date of transition to IFRSs. |
|
|
|
|
An explanation of how the transition to IFRSs has affected the reported financial position,
financial performance and cash flows of the Company is provided in note 27. |
|
|
|
|
The consolidated financial statements were authorized for issue by the Board of Directors
on February 8, 2011. |
|
|
(b) |
|
Basis of measurement: |
|
|
|
|
The Companys consolidated financial statements have been prepared on a going concern and
historical cost basis, except for available-for-sale financial assets which are measured at
fair value. |
|
|
|
|
The methods used to measure fair value are discussed further in note 22. |
5
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
2. |
|
Basis of preparation (continued): |
|
(c) |
|
Functional and presentation currency: |
|
|
|
|
These consolidated financial statements are presented in Canadian dollars, which is the
Companys functional currency. All financial information presented in Canadian dollars has
been rounded to the nearest thousand. |
|
|
(d) |
|
Use of estimates and judgements: |
|
|
|
|
The preparation of the Companys consolidated financial statements in conformity with IFRSs
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the
reporting period. |
|
|
|
|
Information about critical judgements in applying accounting policies and assumption and
estimation uncertainties that have the most significant effect on the amounts recognized in
the consolidated financial statements is included in the following notes: |
|
|
|
Note 4 Revenue and deferred revenue; |
|
|
|
|
Note 15 (iv) Stock option plan; |
|
|
|
|
Note 16 Income taxes; |
|
|
|
|
Note 18 Contingent liability. |
|
|
|
Other areas of judgement and uncertainty relate to the estimation of accruals for clinical
trial expenses, the recoverability of inventories, the measurement of the amount and
assessment of the recoverability of tax credits and grants receivable and capitalization of
development expenditures. |
|
|
|
|
Reported amounts and note disclosure reflect the overall economic conditions that are most
likely to occur and anticipated measures management intends to take. Actual results could
differ from those estimates. |
|
|
|
|
The above estimates and assumptions are reviewed regularly. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future
periods affected. |
3. |
|
Significant accounting policies: |
|
|
|
The accounting policies set out below have been applied consistently to all periods presented
in these consolidated financial statements and in preparing the opening IFRS statement of
financial position at December 1, 2008, the date of transition to IFRSs. |
6
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
|
|
The accounting policies have been applied consistently by the subsidiaries of the Company. |
|
(a) |
|
Basis of consolidation: |
|
|
|
|
The financial statements of subsidiaries are included in the consolidated financial
statements from the date on which control commences until the date on which control ceases.
Subsidiaries are entities controlled by the Company. Control is present where the Company
has the power to govern the financial and operating policies of the entity so as to obtain
benefits from its activities. In assessing control, potential voting rights that are
exercisable currently are taken into consideration. The accounting policies of subsidiaries
are changed when necessary to align them with the policies adopted by the Company. |
|
|
|
|
Reciprocal balances and transactions, revenues and expenses resulting from transactions
between subsidiaries and with the Company are eliminated in preparing the consolidated
financial statements. |
|
|
(b) |
|
Foreign currency: |
|
|
|
|
Transactions in foreign currencies are translated to the respective functional currencies
of the subsidiaries of the Company at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the exchange rate at that date. The foreign
currency gain or loss on monetary items is the difference between amortized cost in the
functional currency at the beginning of the period, adjusted for effective interest and
payments during the period, and the amortized cost in foreign currency translated at the
exchange rate at the end of the reporting period. |
|
|
|
|
Foreign currency differences arising on translation are recognized in net profit (loss),
except for differences arising on the translation of available-for-sale equity instruments,
which are recognized in other comprehensive income. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value are translated to the
functional currency at the exchange rate at the date on which the fair value was
determined. Non-monetary items that are measured at historical cost in a foreign currency
are translated using the exchange rate at the date of the transaction. |
|
|
(c) |
|
Revenue recognition: |
|
|
|
|
Collaboration agreements that include multiple deliverables are considered to be
multi-element arrangements. Under this type of arrangement, the identification of separate
units of accounting is required and revenue is allocated among the separate units based on
their relative fair values. |
7
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(c) |
|
Revenue recognition (continued): |
|
|
|
|
Payments received under the collaboration agreement may include upfront payments, milestone
payments, research services, royalties and license fees. Revenues for each unit of
accounting are recorded as described below: |
|
(i) |
|
Sale of goods: |
|
|
|
|
Revenues from the sale of goods are recognized when the Company has transferred to the
buyer the significant risks and rewards of ownership of the goods, there is no
continuing management involvement with the goods, and the amount of revenue can be
measured reliably. |
|
|
(ii) |
|
Royalties and license fees: |
|
|
|
|
Royalties and license fees are recognized when conditions and events under the license
agreement have occurred and collectibility is reasonably assured. |
|
|
(iii) |
|
Research services: |
|
|
|
|
Revenues from research contracts are recognized when services to be provided are
rendered and all conditions under the terms of the underlying agreement are met. |
|
(a) |
|
Upfront payments and initial technology access fees: |
|
|
|
|
Upfront payments and initial technology access fees are deferred and recognized as
revenue on a systematic basis over the period during which the related products or
services are delivered and all obligations are performed. |
|
|
(b) |
|
Milestone payments: |
|
|
|
|
Revenues subject to the achievement of milestones are recognized only when the
specified events have occurred and collectibility is reasonably assured. |
|
(d) |
|
Cost of sales: |
|
|
|
|
Cost of sales represents the cost of goods sold and includes the cost of raw materials,
supplies, direct overhead charges, unallocated indirect costs related to production as well
as write-down of inventories. Other direct costs, such as manufacturing start-up costs
between validation and the achievement of normal production, are expensed as incurred. |
8
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(e) |
|
Employee benefits: |
|
|
|
|
Salaries and short-term employee benefits: |
|
|
|
|
Salaries and short-term employee benefit obligations are measured on an undiscounted basis
and are expensed as the related service is provided. A liability is recognized for the
amount expected to be paid under short-term profit-sharing or cash bonus plans if the
Company has a legal or constructive obligation to pay an amount as a result of past
services rendered by an employee and the obligation can be estimated reliably. |
|
|
|
|
Post-employment benefits: |
|
|
|
|
Post-employment benefits include a defined contribution plan under which an entity pays
fixed contributions into a separate entity and will have no legal or constructive
obligation to pay further amounts. Obligations for contributions to defined contribution
plans are recognized as an employee benefit expense when due. Prepaid contributions are
recognized as an asset to the extent that a cash refund or a reduction in future payments
is available. The Companys defined contribution plan comprises the registered retirement
savings plan, the Quebec Pension Plan and unemployment insurance. |
|
|
|
|
Termination benefits: |
|
|
|
|
Termination benefits are recognized as an expense when the Company is committed
demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to
either terminate employment before the normal retirement date, or to provide termination
benefits as a result of an offer made to encourage voluntary redundancy. |
|
|
(f) |
|
Finance income and finance costs: |
|
|
|
|
Finance income comprises interest income on available-for-sale financial assets and gains
(losses) on the disposal of available-for-sale financial assets. Interest income is
recognized as it accrues in profit (loss), using the effective interest method. |
|
|
|
|
Finance costs are comprised of bank charges, impairment losses on financial assets
recognized in profit (loss) and of foreign currency gains and losses which are reported on
a net basis. |
9
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(g) |
|
Inventories: |
|
|
|
|
Inventories are presented at the lower of cost, determined using the first-in first-out
method, or net realizable value. Inventory costs include the purchase price and other costs
directly related to the acquisition of materials, and other costs incurred in bringing the
inventories to their present location and condition. Inventory costs also include the costs
directly related to the conversion of materials to finished goods, such as direct labour,
and a systematic allocation of fixed and variable production overhead, including
manufacturing depreciation expense. The allocation of fixed production overheads to the
cost of inventories is based on the normal capacity of the production facilities. Normal
capacity is the average production expected to be achieved over a number of periods under
normal circumstances. |
|
|
|
|
Net realizable value is the estimated selling price in the Companys ordinary course of
business, less the estimated costs of completion and selling expenses. |
|
|
(h) |
|
Property and equipment: |
|
|
|
|
Recognition and measurement: |
|
|
|
|
Items of property and equipment are recognized at cost less accumulated depreciation and
accumulated impairment losses. Cost includes expenditure that is directly attributable to
the acquisition of the asset and the costs of dismantling and removing the item and
restoring the site on which it is located, if any. |
|
|
|
|
When parts of an item of property and equipment have different useful lives, they are
accounted for as separate items (major components) of property and equipment. |
|
|
|
|
Gains and losses on disposal of an item of property and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property and equipment,
and are recognized in net profit (loss). |
|
|
|
|
Subsequent costs: |
|
|
|
|
The cost of replacing a part of an item of property and equipment is recognized in the
carrying amount of the item if it is probable that the future economic benefits embodied
within the part will flow to the Company, and its cost can be measured reliably. The
carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing
of property and equipment are recognized in profit (loss) as incurred. |
10
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(h) |
|
Property and equipment (continued): |
|
|
|
|
Depreciation: |
|
|
|
|
The estimated useful lives and the methods of depreciation for the current and comparative
periods are as follows: |
|
|
|
|
|
|
|
Asset |
|
Method |
|
Rate/Period |
|
|
Computer equipment
|
|
Declining balance
|
|
|
50 |
% |
Laboratory equipment
|
|
Declining balance
|
|
|
20 |
% |
|
|
and straight-line
|
|
|
5 years
|
|
Office furniture and equipment
|
|
Declining balance
|
|
|
20 |
% |
Leasehold improvements
|
|
Straight-line
|
|
|
Lower of term of lease
or economic life
|
|
|
|
|
This most closely reflects the expected pattern of consumption of the future economic
benefits embodied in the asset. |
|
|
|
|
Estimates for depreciation methods, useful lives and residual values are reviewed at each
reporting period-end and adjusted if appropriate. |
|
|
(i) |
|
Intangible assets: |
|
|
|
|
Research and development: |
|
|
|
|
Expenditure on research activities, undertaken with the prospect of gaining new scientific
or technical knowledge and understanding, is expensed as incurred. |
|
|
|
|
Development activities involve a plan or design for the production of new or substantially
improved products and processes. Development expenditure is capitalized only if development
costs can be measured reliably, the product or process is technically and commercially
feasible, future economic benefits are probable, and the Company intends to and has
sufficient resources to complete development and to use or sell the asset. These criteria
are usually met when a regulatory filing has been made in a major market and approval is
considered highly probable. The expenditure capitalized includes the cost of materials,
direct labour, and overhead costs that are directly attributable to preparing the asset for
its intended use. Other development expenditures are expensed as incurred. Capitalized
development expenditures are measured at cost less accumulated amortization and accumulated
impairment losses. |
|
|
|
|
During the years ended November 30, 2010 and 2009 and as at December 1, 2008, no
development expenditures were capitalized. |
11
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(j) |
|
Financial instruments: |
|
|
|
|
The Companys financial instruments are classified into one of three categories: loans and
receivables, available-for-sale financial assets and other financial liabilities. Loans and
receivables and other financial liabilities are measured at amortized cost. |
|
|
|
|
The Company has classified its bonds as available-for-sale financial assets. The Company
has classified cash and trade and other receivables as loans and receivables, and accounts
payable and accrued liabilities as other financial liabilities. |
|
|
|
|
Available-for-sale financial assets are non-derivative financial assets that are designated
as available-for-sale and that are not classified in any of the other categories.
Subsequent to initial recognition, they are measured at fair value and changes therein,
other than impairment losses and foreign currency differences on available-for-sale debt
instruments, are recognized in other comprehensive income and presented within equity. When
an investment is derecognized, the cumulative gain or loss in other comprehensive income is
transferred to profit (loss). |
|
|
(k) |
|
Other assets: |
|
|
|
|
Other assets consist of prepaid expenses for research supplies that are not expected to be
used within one year from the date of the consolidated statement of financial position. |
|
|
|
|
Research supplies are purchased in advance, in accordance with specific regulatory
requirements, to be used in connection with the Companys clinical trials. |
|
|
(l) |
|
Leases: |
|
|
|
|
Operating lease payments are recognized in net profit (loss) on a straight-line basis over
the term of the lease. |
|
|
|
|
Lease inducements arising from leasehold improvement allowances and rent-free periods form
an integral part of the total lease cost and are deferred and recognized in net profit
(loss) over the term of the lease on a straight-line basis. |
12
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(m) |
|
Impairment: |
|
|
|
|
Financial assets: |
|
|
|
|
A financial asset not carried at fair value through profit or loss is assessed at each
consolidated financial statement reporting date to determine whether there is objective
evidence that it is impaired. The Company considers that a financial asset is impaired if
objective evidence indicates that one or more loss events had a negative effect on the
estimated future cash flows of that asset that can be estimated reliably. |
|
|
|
|
An impairment test is performed, on an individual basis, for each material financial asset.
Other individually non-material financial assets are tested as groups of financial assets
with similar risk characteristics. Impairment losses are recognized in net profit (loss). |
|
|
|
|
An impairment loss in respect of a financial asset measured at amortized cost is calculated
as the difference between its carrying amount and the present value of the estimated future
cash flows discounted at the assets original effective interest rate. Losses are
recognized in net profit (loss) and reflected in an allowance account against the
respective financial asset. Interest on the impaired asset continues to be recognized
through the unwinding of the discount. When a subsequent event causes the amount of
impairment loss to decrease, the decrease in impairment loss is reversed through net profit
(loss). |
|
|
|
|
Impairment losses on available-for-sale investment securities are recognized by
transferring the cumulative loss that has been recognized in other comprehensive income,
and presented in unrealized gains/losses on available-for-sale financial assets in equity,
to net profit (loss). The cumulative loss that is removed from other comprehensive income
and recognized in net profit (loss) is the difference between the acquisition cost, net of
any principal repayment and amortization, and the current fair value, less any impairment
loss previously recognized in net profit (loss). Changes in impairment provisions
attributable to time value are reflected as a separate component of interest income. |
|
|
|
|
If, in a subsequent period, the fair value of an impaired available-for-sale debt security
increases and the increase can be related objectively to an event occurring after the
impairment loss was recognized in net profit (loss), then the impairment loss is reversed,
with the amount of the reversal recognized in net profit (loss). However, any subsequent
recovery in the fair value of an impaired available-for-sale equity security is recognized
in other comprehensive income. |
13
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(m) |
|
Impairment (continued): |
|
|
|
|
Non-financial assets: |
|
|
|
|
The carrying amounts of the Companys non-financial assets, other than inventories and
deferred tax assets, are reviewed at each reporting date to determine whether there is any
indication of impairment. If such an indication exists, the recoverable amount is
estimated. |
|
|
|
|
The recoverable amount of an asset or a cash-generating unit is the greater of its value in
use and its fair value less costs to sell. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to
the asset. For the purpose of impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely
independent of cash inflows from other assets or groups of assets (''cash-generating
unit). Impairment losses recognized in prior periods are determined at each reporting
date for any indications that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates used to determine the
recoverable amount. An assets carrying amount, increased through reversal of an impairment
loss, must not exceed the carrying amount that would have been determined, net of
depreciation or amortization, if no impairment loss had been recognized. |
|
|
(n) |
|
Provisions: |
|
|
|
|
A provision is recognized if, as a result of a past event, the Company has a present legal
or constructive obligation that can be estimated reliably, and it is probable that an
outflow of economic benefits will be required to settle the obligation. Provisions are
assessed by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the
liability. The unwinding of the discount on provisions is recognized in finance costs. |
|
|
|
|
Onerous contracts: |
|
|
|
|
A provision for onerous contracts is recognized when the expected benefits to be derived by
the Company from a contract are lower than the unavoidable cost of meeting its obligations
under the contract. The provision is measured at the present value of the lower of the
expected cost of terminating the contract and the expected net cost of continuing with the
contract. Before a provision is established, the Company recognizes any impairment loss on
the assets associated with that contract. There were no onerous contracts as at November
30, 2010 and 2009 and December 1, 2008. |
14
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(n) |
|
Provisions (continued): |
|
|
|
|
Site restoration: |
|
|
|
|
Where there is a legal or constructive obligation to restore leased premises to good
condition, except for normal aging on expiry or early termination of the lease, the
resulting costs are provisioned up to the discounted value of estimated future costs and
increase the carrying amount of the corresponding item of property and equipment. The
Company amortizes the cost of restoring leased premises and recognizes an unwinding of
discount expense on the liability related to the term of the lease. |
|
|
|
|
Contingent liability: |
|
|
|
|
A contingent liability is a possible obligation that arises from past events and of which
the existence will be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the Company; or a present
obligation that arises from past events (and therefore exists), but is not recognized
because it is not probable that a transfer or use of assets, provision of services or any
other transfer of economic benefits will be required to settle the obligation, or the
amount of the obligation cannot be estimated reliably. |
|
|
(o) |
|
Income taxes: |
|
|
|
|
Income tax expense comprises current and deferred tax. Current tax and deferred tax are
recognized in net profit (loss) except to the extent that they relate to items recognized
directly in other comprehensive income or in equity. |
|
|
|
|
Current tax: |
|
|
|
|
Current tax is the expected tax payable or receivable on the taxable income or loss for the
year, using tax rates enacted or substantively enacted at the reporting date, and any
adjustment to tax payable in respect of previous years. The Company establishes provisions
where appropriate on the basis of amounts expected to be paid to the tax authorities. |
|
|
|
|
Deferred tax: |
|
|
|
|
Deferred tax is recognized in respect of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is measured at the tax rates that are expected to be
applied to temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted by the reporting date. |
|
|
|
|
A deferred tax liability is generally recognized for all taxable temporary differences. |
15
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in
thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(o) |
|
Income taxes
(continued): |
|
|
|
|
Deferred
tax (continued): |
|
|
|
|
A deferred tax asset is recognized for unused tax losses and deductible temporary
differences, to the extent that it is probable that future taxable profits will be
available against which they can be utilized. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realized. |
|
|
(p) |
|
Share-based compensation: |
|
|
|
|
The Company records share-based compensation related to employee stock options granted
using the fair value based method estimated using the Black-Scholes model. Under this
method, compensation cost is measured at fair value at the date of grant and expensed, as
employee benefits, over the period in which employees unconditionally become entitled to
the award. The amount recognized as an expense is adjusted to reflect the number of awards
for which the related service conditions are expected to be met, such that the amount
ultimately recognized as an expense is based on the number of awards that do meet the
related service and non-market performance conditions at the vesting date. |
|
|
|
|
Share-based payment arrangements in which the Company receives goods or services as
consideration for its own equity instruments are accounted for as equity-settled
share-based payment transactions, regardless of how the equity instruments are obtained by
the Company. |
|
|
|
|
As permitted by IFRS 1, the Company elected not to restate options that were granted before
November 7, 2002 and those granted after November 7, 2002 that were fully vested prior to
the date of transition to IFRS. |
|
|
(q) |
|
Government grants: |
|
|
|
|
Government grants consisting of grants and investment tax credits, are recorded as a
reduction of the related expense or cost of the asset acquired. Government grants are
recognized when there is reasonable assurance that the Company has met the requirements of
the approved grant program and there is reasonable assurance that the grant will be
received. |
16
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(r) |
|
Share capital: |
|
|
|
|
Common shares: |
|
|
|
|
Common shares are classified as equity. Incremental costs directly attributable to the
issue of common shares and share options are recognized as a deduction from equity, net of
any tax effects. |
|
|
(s) |
|
Earnings per share: |
|
|
|
|
The Company presents basic and diluted earnings per share (EPS) data for its common shares. Basic EPS is calculated by dividing the net profit or loss attributable to common
shareholders of the Company by the weighted average number of common shares outstanding
during the period, adjusted for own shares held, if applicable. Diluted EPS is determined
by adjusting the profit or loss attributable to common shareholders and the weighted
average number of common shares outstanding, adjusted for own shares held if applicable,
for the effects of all dilutive potential common shares, which consist of the stock options
granted to employees. |
|
|
(t) |
|
New standards and interpretations not yet applied: |
|
|
|
|
Certain pronouncements were issued by the IASB or International Financial Reporting
Interpretation Committee that are mandatory for annual periods beginning on or after
January 1, 2010 or later periods. Many of these updates are not applicable or are
inconsequential to the Company and have been excluded from the discussion below. The
remaining pronouncements are being assessed to determine their impact on the Companys
results and financial position: |
|
|
|
|
Annual improvements to IFRS: |
|
|
|
|
The IASBs improvements to IFRS published in April 2009 contain fifteen amendments to
twelve standards that result in accounting changes for presentation, recognition or
measurement purposes largely for annual periods beginning on or after January 1, 2010, with
early adoption permitted. These amendments were considered by the Company and deemed to be
not applicable to the Company other than for the amendment to IAS 17 Leases relating to
leases which include both land and buildings elements. In this case, the Company early
adopted this amendment. |
|
|
|
|
The IASBs improvements to IFRS contain seven amendments that result in accounting changes
for presentation, recognition or measurement purposes. The most significant features of the
IASBs annual improvements project published in May 2010 are included under the specific
revisions to standards discussed below. |
17
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(t) |
|
New standards and interpretations not yet applied (continued): |
|
|
|
|
Annual improvements to IFRS (continued): |
|
(i) |
|
IFRS 3: |
|
|
|
|
Revision to IFRS 3, Business Combinations: |
|
|
|
|
Effective for annual periods beginning on or after July 1, 2010 with earlier adoption
permitted. |
|
|
|
|
Clarification on the following areas: |
|
|
|
the choice of measuring non-controlling interests at fair value or at the
proportionate share of the acquirees net assets applies only to instruments that
represent present ownership interests and entitle their holders to a proportionate
share of the net assets in the event of liquidation. All other components of
non-controlling interest are measured at fair value unless another measurement
basis is required by IFRS. |
|
|
|
|
application guidance relating to the accounting for share-based payments
in IFRS 3 applies to all share-based payment transactions that are part of a
business combination, including unreplaced awards (i.e., unexpired awards over the
acquiree shares that remain outstanding rather than being replaced by the
acquirer) and voluntarily replaced share-based payment awards. |
|
(ii) |
|
IFRS 7: |
|
|
|
|
Amendment to IFRS 7, Financial Instruments: Disclosures: |
|
|
|
|
Effective for annual periods beginning on or after January 1, 2011, with earlier
adoption permitted. |
|
|
|
|
Multiple clarifications related to the disclosure of financial instruments and in
particular in regards to transfers of financial assets. |
|
|
(iii) |
|
IAS 1: |
|
|
|
|
Amendment to IAS 1, Presentation of Financial Statements: |
|
|
|
|
Effective for annual periods beginning on or after January 1, 2011, with earlier
adoption permitted. |
|
|
|
|
Entities may present the analysis of the components of other comprehensive income
either in the statement of changes in equity or within the notes to the financial
statements. |
18
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(t) |
|
New standards and interpretations not yet applied (continued): |
|
|
|
|
Annual improvements to IFRS (continued): |
|
(iv) |
|
IAS 27: |
|
|
|
|
Amendment to IAS 27, Consolidated and Separate Financial Statements: |
|
|
|
|
Effective for annual periods beginning on or after January 1, 2011, with earlier
adoption permitted. |
|
|
|
|
The 2008 revisions to this standard resulted in consequential amendments to IAS 21,
The Effects of Changes in Foreign Exchange
Rates, IAS 28, Investments in Associates, and
IAS 31, Interests in Joint Ventures. IAS 27 now provides that these amendments are to be
applied prospectively. |
|
|
(v) |
|
IAS 34: |
|
|
|
|
Amendment to IAS 34, Interim Financial Reporting: |
|
|
|
|
Effective for annual periods beginning on or after January 1, 2011, with earlier
adoption permitted. |
|
|
|
|
The amendments place greater emphasis on the disclosure principles for interim financial
reporting involving significant events and transactions, including changes to fair value
measurements and the need to update relevant information from the most recent annual
report. |
|
|
|
New or revised standards and interpretations: |
|
|
|
|
In addition, the following new or revised standards and interpretations have been issued but
are not yet applicable to the Company: |
|
(i) |
|
IAS 24: |
|
|
|
|
Amendments to IAS 24, Related Party Disclosures: |
|
|
|
|
Effective for annual periods beginning on or after January 1, 2011, with earlier
adoption permitted. |
|
|
|
|
There are limited differences in the definition of what constitutes a related party;
however, the amendment requires more detailed disclosures regarding commitments. |
19
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
3. |
|
Significant accounting policies (continued): |
|
(t) |
|
New standards and interpretations not yet applied (continued): |
|
|
|
|
New or revised standards and interpretations (continued): |
|
(ii) |
|
IFRS 8: |
|
|
|
|
IFRS 8, Operating Segments: |
|
|
|
|
Effective for annual periods beginning on or after January 1,
2010. Requires purchase information about segment assets. |
|
|
(iii) |
|
IFRS 9: |
|
|
|
|
New standard IFRS 9, Financial Instruments: |
|
|
|
|
Effective for annual periods beginning on or after January 1, 2013, with earlier
adoption permitted. |
|
|
|
|
As part of the project to replace IAS 39, Financial Instruments: Recognition and
Measurement, this standard retains but simplifies the mixed measurement model and
establishes two primary measurement categories for financial assets. More specifically,
the standard: |
|
|
|
deals with classification and measurement of financial assets |
|
|
|
|
establishes two primary measurement categories for financial assets:
amortized cost and fair value |
|
|
|
|
classification depends on entitys business model and the contractual
cash flow characteristics of the financial asset |
|
|
|
|
eliminates the existing categories: held to maturity, available for sale,
and loans and receivables. |
|
|
|
Certain changes were also made regarding the fair value option for financial
liabilities and accounting for certain derivatives linked to unquoted equity
instruments. |
4. |
|
Revenue and deferred revenue: |
|
|
|
On October 28, 2008, the Company entered into a collaboration and licensing agreement with EMD
Serono Inc. (EMD Serono), an affiliate of the Group Merck KGaA, of Darmstadt, Germany,
regarding the exclusive commercialization rights of tesamorelin in the United States for the
treatment of excess abdominal fat in HIV-infected patients with lipodystrophy (the Initial
Product). The Company retains all tesamorelin commercialization rights outside of the United
States. |
20
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
4. |
|
Revenue and deferred revenue (continued): |
|
|
|
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, which was obtained on November
10, 2010. The Company is also responsible for product production and for developing 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
(C$36,951), which includes an initial payment of US$22,000 (C$27,097) and US$8,000 (C$9,854) as
a subscription for common shares in the Company by Merck KGaA at a price of US$3.67 (C$4.52)
per share. The Company may receive up to US$215,000, 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 increasing royalties on annual net sales of tesamorelin in the United States, if
applicable. |
|
|
|
The initial payment of $27,097 has been deferred and is being amortized on a straight-line
basis over the estimated period for developing a new formulation of the Initial Product. This
period may be modified in the future based on additional information that may be received by
the Company. At November 30, 2010, an amount of $6,846 (2009 $6,560) was recognized as
revenue. As at November 30, 2010, the deferred revenue related to this transaction amounted to
$13,692 (2009 $20,537). |
|
|
|
On August 12, 2009, the FDA accepted the New Drug Application (''NDA) made by the Company for
tesamorelin. Under the terms of the Companys collaboration and licensing agreement with EMD
Serono, the acceptance of the tesamorelin NDA resulted in a milestone payment of US$10,000
(C$10,884). |
|
|
|
On November 10, 2010, the FDA approved EGRIFTATM as the first approved
treatment in the United States for the reduction of excess abdominal fat in HIV-infected
patients with lipodystrophy. By virtue of the collaboration and licensing agreement entered
into in 2008 with EMD Serono, the Company received a milestone payment of US$25,000 (C$25,000)
associated with the FDA-approval of EGRIFTATM. This payment was received
by the Company on November 30, 2010. |
|
|
|
The Company may conduct research and development activities for additional indications. Under
the collaboration and licensing agreement, EMD Serono will also have the option to
commercialize additional indications for tesamorelin in the United States. 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 an agreement with
EMD Serono, to participate in promoting these additional indications. |
21
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
Note |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and short-term employee benefits |
|
|
|
|
|
|
11,577 |
|
|
|
10,779 |
|
Post-employment benefits |
|
|
|
|
|
|
579 |
|
|
|
542 |
|
Termination benefits |
|
|
|
|
|
|
20 |
|
|
|
275 |
|
Share-based compensation |
|
15 (iv) |
|
|
1,133 |
|
|
|
997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total personnel expenses |
|
|
|
|
|
|
13,309 |
|
|
|
12,593 |
|
|
6. |
|
Selling and market development expenses: |
|
|
|
In 2008, the Company completed a formal review of the strategic alternatives regarding its
operations which culminated in the signing of the collaborative licensing agreement with EMD
Serono (note 4). As a result of this process, $4,269 was recorded in 2009 for professional fees
related to the closing of the agreement with EMD Serono. |
7. |
|
Finance income and finance costs: |
|
|
|
Recognized in net profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
1,562 |
|
|
|
2,123 |
|
Net gain on disposal of available-for-sale financial assets transferred from equity |
|
|
326 |
|
|
|
129 |
|
|
Finance income |
|
|
1,888 |
|
|
|
2,252 |
|
|
|
|
|
|
|
|
|
|
Bank charges |
|
|
(18 |
) |
|
|
(26 |
) |
Net foreign currency gain (loss) |
|
|
511 |
|
|
|
(635 |
) |
|
Finance costs |
|
|
493 |
|
|
|
(661 |
) |
|
|
|
|
|
|
|
|
|
|
Net finance income recognized in net profit (loss) |
|
|
2,381 |
|
|
|
1,591 |
|
|
22
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
7. |
|
Finance income and finance costs (continued): |
|
|
|
Recognized in other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
$ |
|
|
$ |
|
|
Net change in fair value of available-for-sale financial assets |
|
|
(390 |
) |
|
|
1,039 |
|
Net change in fair value of available-for-sale financial assets transferred to net profit (loss) |
|
|
(326 |
) |
|
|
(129 |
) |
|
|
Finance (costs) income recognized in other comprehensive income, net of tax |
|
|
(716 |
) |
|
|
910 |
|
|
8. |
|
Bonds: |
|
|
|
Bonds are interest-bearing available-for-sale financial assets, with a carrying amount of
$37,901 as at November 30, 2010 ($61,843 in 2009, and $46,204 as at December 1, 2008), have
stated interest rates of 2.37% to 6.75% (2.37% to 6.75% in 2009 and 3.00% to 6.85% as at
December 1, 2008) and mature in 1.9 year (2.16 in 2009 and 1.8 in 2008). |
|
|
|
The Companys exposure to credit and interest rate risks related to bonds is presented in note
20. |
9. |
|
Trade and other receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
December 1, |
|
|
|
Note |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Trade receivables |
|
|
|
|
|
|
6 |
|
|
|
3 |
|
|
|
12 |
|
Sales tax receivable |
|
|
|
|
|
|
100 |
|
|
|
190 |
|
|
|
419 |
|
Loans granted to employees under the share purchase plan |
|
15 (iii) |
|
|
25 |
|
|
|
74 |
|
|
|
91 |
|
Loans granted to related parties under the share purchase plan |
|
15 (iii) |
|
|
22 |
|
|
|
75 |
|
|
|
59 |
|
Other receivables |
|
|
|
|
|
|
8 |
|
|
|
33 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
161 |
|
|
|
375 |
|
|
|
610 |
|
|
|
|
The Companys exposure to credit and currency risks related to trade and other receivables
is presented in note 20. |
23
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
10. |
|
Tax credits and grants receivable: |
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
$ |
|
|
$ |
|
|
Balance at beginning of the year |
|
|
1,333 |
|
|
|
1,451 |
|
Investment tax credits and grants received |
|
|
(1,935 |
) |
|
|
(1,913 |
) |
Investment tax credits and grants recognized in net profit (loss) |
|
|
934 |
|
|
|
1,795 |
|
|
|
|
|
|
332 |
|
|
|
1,333 |
|
|
Tax credits and grants receivable comprise research and development investment tax credits
receivable from the provincial government which relate to qualifiable research and development
expenditures under the applicable tax laws. The amounts recorded as receivable are subject to a
government tax audit and the final amounts received may differ from those recorded. There are
no unfulfilled conditions or contingencies associated with the government assistance received.
Unused federal tax credits may be used to reduce future income tax and expire as follows:
|
|
|
|
|
|
|
$ |
|
|
|
2023 |
|
|
452 |
|
2024 |
|
|
1,597 |
|
2025 |
|
|
1,863 |
|
2026 |
|
|
2,178 |
|
2027 |
|
|
3,000 |
|
2028 |
|
|
3,328 |
|
2029 |
|
|
2,250 |
|
2030 |
|
|
1,167 |
|
|
|
|
|
|
15,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
December 1, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Raw materials |
|
|
3,395 |
|
|
|
2,225 |
|
|
|
|
|
Work in progress |
|
|
922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,317 |
|
|
|
2,225 |
|
|
|
|
|
|
24
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
11. |
|
Inventories (continued): |
|
|
|
In 2010, $123 of raw materials, and $69 of work in progress were written down to their net
realizable value (November 30, 2009 nil and nil; December 1, 2008 nil and nil).
Consequently, a write-down of $192 was recorded to cost of sales in 2010 (2009 nil). |
|
|
|
The write-down was due to unfavourable pricing related to raw materials that were not
originally purchased under the conditions of the Companys current long-term procurement
agreements. |
|
12. |
|
Property and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office |
|
|
|
|
|
|
|
|
|
Computer |
|
|
Laboratory |
|
|
furniture and |
|
|
Leasehold |
|
|
|
|
|
|
equipment |
|
|
equipment |
|
|
equipment |
|
|
improvements |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 1, 2008 |
|
|
682 |
|
|
|
1,824 |
|
|
|
1,015 |
|
|
|
1,846 |
|
|
|
5,367 |
|
Additions |
|
|
222 |
|
|
|
125 |
|
|
|
188 |
|
|
|
8 |
|
|
|
543 |
|
Disposals |
|
|
(30 |
) |
|
|
(4 |
) |
|
|
(79 |
) |
|
|
|
|
|
|
(113 |
) |
|
Balance at November 30, 2009 |
|
|
874 |
|
|
|
1,945 |
|
|
|
1,124 |
|
|
|
1,854 |
|
|
|
5,797 |
|
|
Additions |
|
|
130 |
|
|
|
116 |
|
|
|
7 |
|
|
|
46 |
|
|
|
299 |
|
Disposals |
|
|
(63 |
) |
|
|
(43 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(108 |
) |
|
Balance at November 30, 2010 |
|
|
941 |
|
|
|
2,018 |
|
|
|
1,129 |
|
|
|
1,900 |
|
|
|
5,988 |
|
|
Accumulated depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 1, 2008 |
|
|
500 |
|
|
|
1,427 |
|
|
|
700 |
|
|
|
1,441 |
|
|
|
4,068 |
|
|
Depreciation for the year |
|
|
147 |
|
|
|
96 |
|
|
|
79 |
|
|
|
290 |
|
|
|
612 |
|
Disposals |
|
|
(30 |
) |
|
|
(4 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
(112 |
) |
|
Balance at November 30, 2009 |
|
|
617 |
|
|
|
1,519 |
|
|
|
701 |
|
|
|
1,731 |
|
|
|
4,568 |
|
Depreciation for the year |
|
|
170 |
|
|
|
88 |
|
|
|
85 |
|
|
|
123 |
|
|
|
466 |
|
Disposals |
|
|
(63 |
) |
|
|
(41 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(106 |
) |
|
Balance at November 30, 2010 |
|
|
724 |
|
|
|
1,566 |
|
|
|
784 |
|
|
|
1,854 |
|
|
|
4,928 |
|
|
|
Net carrying amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2008 |
|
|
182 |
|
|
|
397 |
|
|
|
315 |
|
|
|
405 |
|
|
|
1,299 |
|
November 30, 2009 |
|
|
257 |
|
|
|
426 |
|
|
|
423 |
|
|
|
123 |
|
|
|
1,229 |
|
November 30, 2010 |
|
|
217 |
|
|
|
452 |
|
|
|
345 |
|
|
|
46 |
|
|
|
1,060 |
|
|
|
25
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
12. |
|
Property and equipment (continued): |
|
|
|
Depreciation expense for the year has been recorded in the following accounts in the
consolidated statement of comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
$ |
|
|
$ |
|
Cost of sales |
|
|
8 |
|
|
|
|
|
Research and development expenses |
|
|
231 |
|
|
|
306 |
|
Selling and market development expenses |
|
|
10 |
|
|
|
14 |
|
General and administrative expenses |
|
|
217 |
|
|
|
292 |
|
|
|
|
|
466 |
|
|
|
612 |
|
|
13. |
|
Accounts payable and accrued liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
December 1, |
|
|
|
|
Note |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Trade payables |
|
|
|
|
|
|
1,001 |
|
|
|
1,984 |
|
|
|
284 |
|
Accrued liabilities and other payables |
|
|
|
|
|
|
1,440 |
|
|
|
1,768 |
|
|
|
4,692 |
|
Salaries and benefits due to related parties |
|
|
25 |
|
|
|
565 |
|
|
|
450 |
|
|
|
504 |
|
Employee salaries and benefits payable |
|
|
|
|
|
|
1,971 |
|
|
|
1,366 |
|
|
|
1,385 |
|
|
|
|
|
|
|
|
|
4,977 |
|
|
|
5,568 |
|
|
|
6,865 |
|
|
The Companys exposure to currency and liquidity risks related to accounts payable and
accrued liabilities is presented in note 20.
14. |
|
Other liabilities: |
|
|
|
Other liabilities consist of deferred lease inducements relating to rent free periods amounting
to $325 as at November 30, 2010 (November 30, 2009 and December 1, 2008 nil) (note 17). |
26
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
15. |
|
Share capital: |
|
|
|
Authorized in unlimited number and without par value: |
|
|
|
Common shares |
|
|
|
|
Preferred shares issuable in one or more series |
All issued shares are fully paid, except for 33,524 (2009 90,298) issued under the share
purchase plan and for which the loan has not been repaid in full (see note 15 (iii)).
Common shareholders are entitled to receive dividends as declared by the Company at its
discretion and are entitled to one vote per share at the Companys annual general meeting.
No preferred shares are outstanding.
|
(i) |
|
2010: |
|
|
|
|
In 2010, the Company received subscriptions in the amount of $15 for the issuance of 2,880
common shares in connection with its share purchase plan. |
|
|
|
|
2009: |
|
|
|
|
Under the terms of the collaboration and licensing agreement with EMD Serono, the Company
issued 2,179,837 common shares for a cash consideration of $9,854 (see note 4). |
|
|
|
|
In 2009, the Company also received subscriptions in the amount of $96 for the issuance of
34,466 common shares in connection with its share purchase plan. |
|
|
|
|
All shares issued were for cash consideration. |
|
|
(ii) |
|
Shareholder rights plan: |
|
|
|
|
On February 10, 2010, the Companys Board of Directors adopted a shareholder rights plan
(the ''Plan), effective as of that date. The Plan is designed to provide adequate time
for the Board of Directors and the shareholders, to assess an unsolicited takeover bid for
the Company. In addition, the Plan provides the Board of Directors with sufficient time to
explore and develop alternatives for maximizing shareholder value if a takeover bid is
made, as well as provide shareholders with an equal opportunity to participate in a
takeover bid to receive full and fair value for their common shares. The Plan will expire
at the close of the Companys annual meeting of shareholders in 2013. |
27
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
15. |
|
Share capital (continued): |
|
(ii) |
|
Shareholder rights plan (continued): |
|
|
|
|
The rights issued under the Plan will initially attach to and trade with the common shares
and no separate certificates will be issued unless a triggering event occurs. The rights
will become exercisable only when a person, including any party related to it, acquires or
attempts to acquire 20% or more of the outstanding shares without complying with the
Permitted Bid provisions of the Plan or without approval of the Board of Directors.
Should such an acquisition occur or be announced, each right would, upon exercise, entitle
a rights holder, other than the acquiring person and related persons, to purchase common shares at a 50% discount to the market price at the time. |
|
|
|
|
Under the Plan, a Permitted Bid is a bid made to all holders of the common shares and which
is open for acceptance for not less than 60 days. If at the end of 60 days at least 50% of
the outstanding common shares, other than those owned by the offeror and certain related
parties, have been tendered, the offeror may take up and pay for the common shares, but
must extend the bid for a further 10 days to allow other shareholders to tender. |
|
|
(iii) |
|
Share purchase plan: |
|
|
|
|
The Share Purchase Plan entitles full-time and part-time employees of the Company who, on
the participation date, are residents of Canada, are not under a probationary period and do
not hold, directly or indirectly, five percent (5%) or more of the Companys outstanding
common shares, to directly subscribe for common shares of the Company. Under the Share
Purchase Plan, a maximum of 550,000 common shares may be issued to employees. |
|
|
|
|
On May 1 and November 1 of each year (the Participation Dates), an employee may
subscribe for a number of common shares under the Share Purchase Plan for an amount that
does not exceed 10% of that employees gross annual salary for that year. Under the Share
Purchase Plan, the Board of Directors has the authority to suspend or defer a subscription
of common shares, or to decide that no subscription of common shares will be allowed on a
Participation Date if it is in the Companys best interest. |
|
|
|
|
The Share Purchase Plan provides that the number of common shares that may be issued to
insiders, at any time, under all share-based compensation arrangements of the Company,
cannot exceed 10% of the Companys outstanding common shares, and the number of common shares issued to insiders, within any one-year period, under all security-based
compensation arrangements, cannot exceed 10% of the outstanding common shares. |
|
|
|
|
The subscription price for each new common share subscribed for under the Share Purchase
Plan is equal to the weighted average closing price of the common shares on the Toronto
Stock Exchange during a period of five days prior to the Participation Date. Employees may
not assign the rights granted under the Share Purchase Plan. |
28
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
15. |
|
Share capital (continued): |
|
(iii) |
|
Share purchase plan (continued): |
|
|
|
|
An employee may elect to pay the subscription price for common shares in cash or through an
interest-free loan from the Company. Loans granted by the Company under the Share Purchase
Plan are repayable through salary withholdings over a period not exceeding two years. All
loans may be repaid prior to the scheduled repayment at any time. The loans granted to any
employee may at no time exceed 10% of that employees current annual gross salary. All
common shares purchased through an interest-free loan are hypothecated to secure full and
final repayment of the loan and are held by a trustee until repayment in full. Loans are
immediately due and payable on the occurrence of any of the following events:
(i) termination of employment; (ii) sale or seizure of the hypothecated common shares;
(iii) bankruptcy or insolvency of the employee; or (iv) suspension of the payment of
an employees salary or revocation of the employees right to salary withholdings. |
|
|
|
|
At November 30, 2010, $47 (November 30, 2009 $149; December 1, 2008 $150) was
receivable under these loans (see note 9). |
|
|
(iv) |
|
Stock option plan: |
|
|
|
|
The Company has established a stock option plan under which it can grant to its directors,
officers, employees, researchers and consultants non-transferable options for the purchase
of common shares. The exercise date of an option may not be later than 10 years after the
grant date. A maximum number of 5,000,000 options can be granted under the plan. Generally,
the options vest at the date of the grant or over a period up to 5 years. As at November
30, 2010, 981,005 options could still be granted by the Company (2009 1,244,834). |
|
|
|
|
All options are to be settled by physical delivery of shares. |
29
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
15. |
|
Share capital (continued): |
|
(iv) |
|
Stock option plan (continued): |
|
|
|
|
Changes in the number of options outstanding during the past two years were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
|
|
|
|
|
exercise price |
|
|
|
Options |
|
|
per option |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Options at December 1, 2008 |
|
|
2,161,800 |
|
|
|
6.52 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
680,500 |
|
|
|
1.83 |
|
Expired |
|
|
(58,500 |
) |
|
|
5.16 |
|
Forfeited |
|
|
(118,000 |
) |
|
|
9.92 |
|
|
|
|
|
|
|
|
|
|
|
Options at November 30, 2009 |
|
|
2,665,800 |
|
|
|
5.20 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
335,000 |
|
|
|
4.03 |
|
Expired |
|
|
(32,500 |
) |
|
|
11.15 |
|
Forfeited |
|
|
(38,671 |
) |
|
|
3.61 |
|
Exercised (weighted average share price: $5.14) |
|
|
(80,491 |
) |
|
|
1.66 |
|
|
|
|
|
|
|
|
|
|
|
Options at November 30, 2010 |
|
|
2,849,138 |
|
|
|
5.12 |
|
|
Exercisable at November 30, 2010 |
|
|
2,196,403 |
|
|
|
5.77 |
|
|
|
|
|
|
The following table provides stock option information as at November 30, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
average |
|
|
Weighted |
|
|
|
Number of |
|
|
remaining |
|
|
average |
|
|
|
options |
|
|
life |
|
|
exercise |
|
Price range ($) |
|
outstanding |
|
|
(years) |
|
|
price |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.20 2.00 |
|
|
1,183,015 |
|
|
|
6.54 |
|
|
|
1.71 |
|
2.01 2.75 |
|
|
141,459 |
|
|
|
3.85 |
|
|
|
2.59 |
|
2.76 3.75 |
|
|
70,000 |
|
|
|
5.51 |
|
|
|
3.37 |
|
3.76 4.60 |
|
|
265,000 |
|
|
|
9.03 |
|
|
|
3.84 |
|
4.61 6.00 |
|
|
95,000 |
|
|
|
7.69 |
|
|
|
4.93 |
|
6.01 9.00 |
|
|
570,664 |
|
|
|
4.82 |
|
|
|
8.17 |
|
9.01 13.50 |
|
|
480,000 |
|
|
|
2.86 |
|
|
|
10.72 |
|
13.51 15.30 |
|
|
44,000 |
|
|
|
0.36 |
|
|
|
15.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,849,138 |
|
|
|
5.59 |
|
|
|
5.12 |
|
|
30
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
15. |
|
Share capital (continued): |
|
(iv) |
|
Stock option plan (continued): |
|
|
|
|
The fair value of options granted was estimated at the grant date using the Black-Scholes
model and the following weighted average assumptions: |
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
2.49 |
% |
|
|
1.83 |
% |
Expected volatility |
|
|
81.13 |
% |
|
|
79.50 |
% |
Average option life in years |
|
|
7.5 |
|
|
|
7.5 |
|
Expected dividends |
|
|
nil |
|
|
|
nil |
|
Grant-date share price |
|
$ |
4.03 |
|
|
$ |
1.83 |
|
Option exercise price |
|
$ |
4.03 |
|
|
$ |
1.83 |
|
|
|
|
The risk-free interest rate is based on the implied yield on a Canadian Government
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 life of the
option. The life of the options is estimated considering the vesting period at the grant
date, the life of the option and the average length of time similar grants have remained
outstanding in the past. The 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 measurement date weighted average fair value of stock
options granted during the years ended November 2010 and 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
|
|
Number of |
|
|
grant-date |
|
|
|
options |
|
|
fair value |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
335,000 |
|
|
|
3.05 |
|
2009 |
|
|
680,500 |
|
|
|
1.36 |
|
|
|
|
The Black-Scholes model used by the Company to calculate option values was developed
to estimate the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differs from the Companys stock option awards. This
model also requires four highly subjective assumptions, including future stock price
volatility and average option life, which greatly affect the calculated values. |
31
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
15. |
|
Share capital (continued): |
|
(v) |
|
Earnings per share: |
|
|
|
|
The calculation of basic earnings per share at November 30, 2010 was based on the net
profit (loss) attributable to common shareholders of the Company of $8,930 (2009 -
($15,156)), and a weighted average number of common shares outstanding of 60,480,032 (2009
60,314,309), calculated as follows: |
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Issued common shares at December 1 |
|
|
60,429,393 |
|
|
|
58,215,090 |
|
Effect of share options exercised |
|
|
49,030 |
|
|
|
|
|
Effect of shares issued during the year |
|
|
1,609 |
|
|
|
2,099,219 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares at November 30 |
|
|
60,480,032 |
|
|
|
60,314,309 |
|
|
|
|
|
The calculation of diluted earnings per share was based on a weighted average number
of common shares calculated as follows: |
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares (basic) |
|
|
60,480,032 |
|
|
|
60,314,309 |
|
Effect of stock options on issue |
|
|
842,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares (diluted) at November 30 |
|
|
61,322,991 |
|
|
|
60,314,309 |
|
|
|
|
|
At November 30, 2010, 1,119,664 options (2009 1,371,167) were excluded from the
diluted weighted average number of common shares calculation as their effect would have
been anti-dilutive. |
|
|
|
|
The average market value of the Companys shares for purposes of calculating the dilutive
effect of share options was based on quoted market prices for the period during which the
options were outstanding. |
32
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
16. |
|
Income taxes: |
|
|
|
Current tax expense: |
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Current tax expense: |
|
|
|
|
|
|
|
|
Current tax expense for the year |
|
|
3,285 |
|
|
|
|
|
Recognition of previously unrecognized tax losses |
|
|
(3,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Income tax expense |
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense: |
|
|
|
|
|
|
|
|
Recognition and reversal of temporary differences |
|
|
|
|
|
|
(4,031 |
) |
Change in unrecognized deductible temporary differences |
|
|
|
|
|
|
4,031 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense |
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation between effective and applicable tax amounts: |
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Income taxes at domestic tax statutory rate |
|
|
2,713 |
|
|
|
(4,683 |
) |
Change in unrecognized deductible temporary differences |
|
|
(3,171 |
) |
|
|
4,031 |
|
Non-deductible expenses and other |
|
|
572 |
|
|
|
652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114 |
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
Deferred tax asset of $114 (2009 nil) related to share issue costs was recognized directly in
equity. |
33
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
16. |
|
Income taxes (continued): |
|
|
|
Deferred tax assets (continued): |
|
|
|
Unrecognized deferred tax assets: |
|
|
|
At November 30, 2010, temporary differences for which no deferred tax asset was recognized were
as follows: |
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
30,143 |
|
|
|
29,380 |
|
Deferred non-capital losses |
|
|
21,013 |
|
|
|
21,490 |
|
Property and equipment |
|
|
609 |
|
|
|
674 |
|
Intellectual property and patent fees |
|
|
9,230 |
|
|
|
12,307 |
|
Available deductions and other |
|
|
4,648 |
|
|
|
4,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,643 |
|
|
|
68,814 |
|
|
|
|
In assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income. The generation of future taxable income is dependent on the successful
commercialization of the Companys products and technologies. |
|
|
|
Given the Companys past losses, management does not believe that it is more probable than not
that the Company can realize its deferred tax assets and therefore it has not recognized any
amount in the statement of financial position. |
34
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
16. |
|
Income taxes (continued): |
|
|
|
Deferred tax assets (continued): |
|
|
|
Unrecognized deferred tax assets (continued): |
|
|
|
At November 30, 2010, the amounts and expiry dates of tax attributes to be deferred for which
no deferred tax asset was recognized were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
2009 |
|
|
|
|
Federal |
|
|
Provincial |
|
|
Federal |
|
|
Provincial |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Research and development expenses,
without time limitation |
|
|
103,324 |
|
|
|
123,062 |
|
|
|
103,346 |
|
|
|
115,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses carried forward: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
1,216 |
|
|
|
|
|
|
|
9,603 |
|
|
|
|
|
2015 |
|
|
275 |
|
|
|
|
|
|
|
275 |
|
|
|
|
|
2027 |
|
|
7,638 |
|
|
|
7,628 |
|
|
|
7,638 |
|
|
|
7,628 |
|
2028 |
|
|
46,316 |
|
|
|
32,174 |
|
|
|
46,316 |
|
|
|
46,271 |
|
2029 |
|
|
19,484 |
|
|
|
16,467 |
|
|
|
21,785 |
|
|
|
18,802 |
|
2030 |
|
|
11,440 |
|
|
|
11,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other temporary differences, without time limitation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of tax value of property and equipment
over carrying value |
|
|
2,773 |
|
|
|
1,666 |
|
|
|
3,121 |
|
|
|
1,785 |
|
Tax value of intellectual property and patent fees |
|
|
34,301 |
|
|
|
34,289 |
|
|
|
45,735 |
|
|
|
45,718 |
|
Available deductions and other |
|
|
57,343 |
|
|
|
1,412 |
|
|
|
58,415 |
|
|
|
2,732 |
|
17. |
|
Operating leases: |
|
|
|
The Company rents its headquarters and main office pursuant to an operating lease (the
Lease) expiring in April 2021. Under the terms of the Lease, the Company has also been
granted two renewal options for periods of five years each. Lease payments will increase by 11%
beginning on November 1, 2015. |
|
|
|
During the year ended November 30, 2010, an amount of $628 was recognized as an expense in
respect of operating leases (2009 $805). Of the amount $133 (2009 $176) is included in
General and administrative expenses and $495 (2009 $629) is included in Research and
development expenses. |
35
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
17. |
|
Operating leases (continued): |
|
|
|
The Companys lease includes a lease of land and building. Since the land title does not pass,
and the Company does not participate in the residual value of the building, it was determined
that substantially all the risks and rewards of the building are with the lessor. As such, the
Company determined that the lease is an operating lease. |
|
|
|
The Company has committed to pay the lessor for its share of some operating expenses of the
leased premises. This amount has been set at $240 per year beginning May 1, 2010 and will be
increased by 2.5% annually for the duration of the Lease. Refer to note 23 for the contractual
commitments related to this lease. |
|
|
|
The lessor granted the Company a monetary allowance in the amount of $728 to make leasehold
improvements. This amount had not been received as at November 30, 2010. Furthermore, the
Company benefits from a 25-month rent free period which is deferred and recognized over the
lease term. As at November 30, 2010, $325 was included in Other liability (nil November 30,
2009) in regards to the deferred free rent inducement (note 14 Other liabilities). |
|
|
|
The Company had issued an irrevocable letter of credit in favour of the lessor in the amount of
$323 under the terms of the Lease renewal, along with a first ranking movable hypothec in the
amount of $1,150 covering all the Companys tangible assets located in the rented premises. The
letter of credit and the hypothec were cancelled on April 30, 2010. |
|
18. |
|
Contingent liability: |
|
|
|
On July 26, 2010, the Company received a motion of authorization to institute a class action
lawsuit against the Company, a director and a former executive officer (the Motion). This
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 certain alleged adverse effects relating to the
administration of EGRIFTATM. 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. |
|
|
|
The Motion had not yet been heard by the Superior Court of Quebec and a date has not been set
for the hearing. |
36
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
18. |
|
Contingent liability (continued): |
|
|
|
The Company has subscribed to insurance covering its potential liability and the potential
liability of its directors and officers in the performance of their duties for the Company
subject to a $200 deductible. At November 30, 2010, an amount of $96 in legal fees has been
accrued and included in general and administrative expenses, of which $61 was paid during the
year and $35 remained in accounts payable and accrued liabilities. |
|
19. |
|
Statement of cash flows: |
|
|
|
The Company entered into the following transactions which had no impact on the cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
December 1, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Additions to property and equipment included in accounts
payable and accrued liabilities |
|
|
65 |
|
|
|
183 |
|
|
|
48 |
|
Share issue costs included in accounts payable and accrued liabilities |
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
In addition, interest received totalled $2,290 (2009 $1,200). |
|
20. |
|
Financial instruments: |
|
|
|
Overview: |
|
|
|
This note provides disclosures relating to the nature and extent of the Companys exposure to
risks arising from financial instruments, including credit risk, liquidity risk, currency risk
and interest rate risk, and how the Company manages those risks. |
|
(a) |
|
Credit risk: |
|
|
|
|
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial
instrument fails to meet its contractual obligations. The Company regularly monitors credit
risk exposure and takes steps to mitigate the likelihood of this exposure resulting in
losses. |
37
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
20. |
|
Financial instruments (continued): |
|
|
|
Overview (continued): |
|
(a) |
|
Credit risk (continued): |
|
|
|
|
The Companys exposure to credit risk currently relates to accounts receivable with only
one customer (see note 4). Financial instruments other than cash and trade and other
receivables that potentially subject the Company to significant credit risk consist
principally of bonds. The Company invests its available cash in highly liquid fixed income
instruments from governmental, paragovernmental and municipal bodies ($37,542 as at
November 30, 2010) as well as from companies with high credit ratings ($359 as at November
30, 2010). As at November 30, 2010, the Company was not exposed to any credit risk over the
carrying amount of the bonds. |
|
|
(b) |
|
Liquidity risk: |
|
|
|
|
Liquidity risk is the risk that the Company will not be able to meet its financial
obligations as they become due. As indicated in the capital management section below, the
Company manages this risk through the management of its capital structure. It also manages
liquidity risk by continuously monitoring actual and projected cash flows. The Board of
Directors and/or the Audit Committee reviews and approves the Companys operating and
capital budgets, as well as any material transactions out of the ordinary course of
business. |
|
|
|
|
The Company has adopted an investment policy in respect of the safety and preservation of
its capital to ensure the Companys liquidity needs are met. The instruments are selected
with regard to the expected timing of expenditures and prevailing interest rates. |
|
|
|
|
The following are amounts due on the contractual maturities of financial liabilities as at
November 30, 2010 and 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
Carrying |
|
|
Less than |
|
|
1 to |
|
|
More than |
|
|
|
Total |
|
|
amount |
|
|
1 year |
|
|
5 years |
|
|
5 years |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Accounts payable and accrued liabilities |
|
|
4,977 |
|
|
|
4,977 |
|
|
|
4,977 |
|
|
|
|
|
|
|
|
|
38
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
20. |
|
Financial instruments (continued): |
|
|
|
Overview (continued): |
|
(b) |
|
Liquidity risk (continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
Carrying |
|
|
Less than |
|
|
1 to |
|
|
More than |
|
|
|
Total |
|
|
amount |
|
|
1 year |
|
|
5 years |
|
|
5 years |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Accounts payable and accrued liabilities |
|
|
5,568 |
|
|
|
5,568 |
|
|
|
5,568 |
|
|
|
|
|
|
|
|
|
|
(c) |
|
Currency risk: |
|
|
|
|
The Company is exposed to financial risk related to the fluctuation of foreign exchange
rates and the degree of volatility of those rates. Currency risk is limited to the portion
of the Companys business transactions denominated in currencies other than the Canadian
dollar, primarily revenues from milestone payments and expenses for research and
development incurred in US dollars, euros and pounds sterling (GBP). The Company does
not use derivative financial instruments to reduce its foreign exchange exposure. |
|
|
|
|
The Company manages currency risk by maintaining cash in US dollars on hand to support US
forecasted cash budgets for a maximum 12-month period. The Company does not currently view
its exposure to the euro and GBP as a significant foreign exchange risk due to the limited
volume of transactions conducted by the Company in these currencies. |
|
|
|
|
Exchange rate fluctuations for foreign currency transactions can cause cash flows as well
as amounts recorded in the consolidated statement of comprehensive income to vary from
period to period and not necessarily correspond to those forecasted in operating budgets
and projections. Additional earnings variability arises from the translation of monetary
assets and liabilities denominated in currencies other than the Canadian dollar at the
rates of exchange at each consolidated statement of financial position date, the impact of
which is reported as foreign exchange gain or loss in the consolidated statement of
comprehensive income. Given the Companys policy on the management of the Companys US
foreign currency risk, the Company does not believe a sudden change in foreign exchange
rates would impair or enhance its ability to pay its US dollar denominated obligations. |
39
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
20. |
|
Financial instruments (continued): |
|
|
|
Overview (continued): |
|
(c) |
|
Currency risk (continued): |
|
|
|
|
The following table presents the significant items exposed to currency risk at the
following dates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
$US |
|
|
EURO |
|
|
GBP |
|
|
|
Cash |
|
|
26,424 |
|
|
|
|
|
|
|
1 |
|
Trade and other receivables |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
(465 |
) |
|
|
(26 |
) |
|
|
(81 |
) |
|
|
Items exposed to currency risk |
|
|
25,959 |
|
|
|
(26 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
$US |
|
|
EURO |
|
|
GBP |
|
|
|
Cash |
|
|
1,471 |
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
|
|
|
|
4 |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
(1,095 |
) |
|
|
|
|
|
|
(25 |
) |
|
|
Items exposed to currency risk |
|
|
376 |
|
|
|
4 |
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, |
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
$US |
|
|
EURO |
|
|
GBP |
|
|
|
Cash |
|
|
1 |
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
(2,589 |
) |
|
|
(159 |
) |
|
|
(348 |
) |
|
|
Items exposed to currency risk |
|
|
(2,588 |
) |
|
|
(159 |
) |
|
|
(348 |
) |
|
40
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
20. |
|
Financial instruments (continued): |
|
|
|
Overview (continued): |
|
(c) |
|
Currency risk (continued): |
|
|
|
|
The following exchange rates are those applicable to the following periods and dates: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
December 1, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Average |
|
|
Reporting |
|
|
Average |
|
|
Reporting |
|
|
Average |
|
|
Reporting |
|
|
|
rate |
|
|
date rate |
|
|
rate |
|
|
date rate |
|
|
rate |
|
|
date rate |
|
|
$US C$ |
|
|
1.0345 |
|
|
|
1.0266 |
|
|
|
1.0594 |
|
|
|
1.0556 |
|
|
|
1.0479 |
|
|
|
1.2370 |
|
EURO C$ |
|
|
1.3848 |
|
|
|
1.3326 |
|
|
|
1.5808 |
|
|
|
1.5852 |
|
|
|
1.5440 |
|
|
|
1.5711 |
|
GBP C$ |
|
|
1.6051 |
|
|
|
1.5969 |
|
|
|
1.7597 |
|
|
|
1.7366 |
|
|
|
1.9767 |
|
|
|
1.9060 |
|
Based on the Companys foreign currency exposures noted above, varying the above
foreign exchange rates to reflect a 5% strengthening of the Canadian dollar would have
increased the net profit (loss) as follows, assuming that all other variables remained
constant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
$US |
|
|
EURO |
|
|
GBP |
|
|
$US |
|
|
Euro |
|
|
GBP |
|
|
Increase in net profit (loss) |
|
|
1,298 |
|
|
|
(1 |
) |
|
|
(4 |
) |
|
|
19 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
An assumed 5% weakening of the Canadian dollar would have had an equal but opposite
effect on the above currencies to the amounts shown above, assuming that all other
variables remain constant. |
|
|
(d) |
|
Interest rate risk: |
|
|
|
|
Interest rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates. |
|
|
|
|
Short-term bonds held by the Company are invested at fixed interest rates and/or mature in
the short-term. Long-term bonds are also instruments that bear interest at fixed rates. The
risk that the Company will realize a loss as a result of a decline in the fair value of its
bonds is limited because these investments, although they are classified as available for
sale, are generally held to maturity. The unrealized gains or losses on bonds are recorded
in accumulated other comprehensive income. |
41
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
20. |
|
Financial instruments (continued): |
|
|
|
Overview (continued): |
|
(d) |
|
Interest rate risk (continued): |
|
|
|
|
Based on the value of the Companys short and long-term bonds at November 30, 2010, an
assumed 0.5% decrease in market interest rates would have increased the fair value of these
bonds and the accumulated other comprehensive income by approximately $336; an assumed
increase in interest rate of 0.5% would have an equal but opposite effect, assuming that
all other variables remained constant. |
|
|
|
|
Cash bears interest at a variable rate. Trade and other receivables, accounts payable and
accrued liabilities bear no interest. |
|
|
|
|
Based on the average value of variable interest-bearing cash during the year ended November
30, 2010 ($3,219), an assumed 0.5% increase in interest rates during such period would have
increased future cash flow and net profit by approximately $16; an assumed decrease of 0.5%
would have had an equal but opposite effect. |
21. |
|
Capital management: |
|
|
|
The Companys objective in managing capital is to ensure a sufficient liquidity position to
finance its research and development activities, general and administrative expenses, working
capital and capital spending. |
|
|
|
To fund its activities, the Company relied primarily on public offerings of common shares in
Canada and private placements of its common shares as well as up-front payments and milestone
payments primarily associated with EMD Serono. When possible, the Company optimizes its
liquidity position using non-dilutive sources, including investment tax credits, grants and
interest income. |
|
|
|
The Company has a $1,800 revolving credit facility for its short-term financing needs which was
unused at November 30, 2010 (see note 23 (c)). |
|
|
|
The capital management objectives remain the same as for the previous year. |
|
|
|
At November 30, 2010, cash and bonds amounted to $64,550 and tax credits and grants receivable
amounted to $332, for a total of $64,882. The Company believes that its cash position will be
sufficient to finance its operations and capital needs for the next year. |
|
|
|
Currently, the Companys general policy on dividends is to retain cash to keep funds available
to finance the Companys growth. |
|
|
|
The Company is not subject to any externally imposed capital requirements. |
42
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
22. |
|
Determination of fair values: |
|
|
|
Certain of the Companys accounting policies and disclosures require the determination of fair
value, for both financial and non-financial assets and liabilities. Fair values have been
determined for measurement and/or disclosure purposes based on the following methods. When
applicable, further information about the assumptions made in determining fair values is
disclosed in the notes specific to that asset or liability. |
|
|
|
Financial assets and liabilities: |
|
|
|
In establishing fair value, the Company uses a fair value hierarchy based on levels as defined
below: |
|
|
|
Level 1: defined as observable inputs such as quoted prices in active markets. |
|
|
|
|
Level 2: defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable. |
|
|
|
|
Level 3: defined as inputs that are based on little or no observable market data,
therefore requiring entities to develop its own assumptions. |
The Company has determined that the carrying values of its short-term financial assets and
liabilities, including cash, trade and other receivables as well as accounts payable and
accrued liabilities, approximate their fair value because of the relatively short period to
maturity of the instruments.
Bonds are stated at estimated fair value, determined by inputs that are primarily based on
broker quotes at the reporting date (Level 2).
Share-based payment transactions:
The fair value of the employee stock options is measured based on the Black-Scholes valuation
model. Measurement inputs include share price on measurement date, exercise price of the
instrument, expected volatility (based on weighted average historic volatility adjusted for
changes expected due to publicly available information), weighted average expected life of the
instruments (based on historical experience and general option holder behaviour), expected
dividends, and the risk-free interest rate (based on government bonds). Service and non-market
performance conditions attached to the transactions are not taken into account in determining
fair value.
43
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
|
(a) |
|
Leases: |
|
|
|
|
At November 30, 2010 and 2009 and December 1, 2008, the minimum payments required under the
terms of the non-cancellable lease are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
December 1, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one year |
|
|
55 |
|
|
|
340 |
|
|
|
816 |
|
Between one and five years |
|
|
2,239 |
|
|
|
2,020 |
|
|
|
340 |
|
More than five years |
|
|
3,943 |
|
|
|
4,216 |
|
|
|
|
|
|
|
|
|
6,237 |
|
|
|
6,576 |
|
|
|
1,156 |
|
|
|
(b) |
|
Long-term procurement agreements: |
|
|
|
|
During and after the years ended November 30, 2010 and 2009, the Company entered into
long-term procurement agreements with third-party suppliers in anticipation of the
commercialization of EGRIFTATM. |
|
|
(c) |
|
Credit facility: |
|
|
|
|
The Company has a $1,800 revolving credit facility, bearing interest at prime plus 0.5%.
Under the term of the credit facility, the market value of investments held must always be
equivalent to 150% of amounts drawn under the facility. If the market value falls below
$7,000, the Company will provide the bank with a first rank movable hypothec (security
interest) of $1,850 on securities judged satisfactory by the bank. |
|
|
|
|
As at November 30, 2010 and 2009, the Company did not have any borrowings outstanding under
this credit facility. |
24. |
|
Operating segments: |
|
|
|
The Company has a single operating segment. As described in note 4, all of the Companys
revenues are generated from one customer, EMD Serono, which is domiciled in the United States. |
|
|
|
All of the Companys non-current assets are located in Canada, the Companys headquarters. |
44
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
25. |
|
Related parties: |
|
|
|
The Company has a related party relationship with its wholly-owned subsidiaries. There are no
transactions between the Company and its subsidiaries. |
|
|
|
The key management personnel of the Company are the Directors. |
|
|
|
Key management personnel compensation comprised: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
Note |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term employee benefits |
|
|
|
|
|
|
1,891 |
|
|
|
1,647 |
|
Post-employment benefits |
|
|
|
|
|
|
61 |
|
|
|
59 |
|
Share-based compensation |
|
15 (iv) |
|
|
331 |
|
|
|
175 |
|
|
|
|
|
|
|
|
|
2,283 |
|
|
|
1,881 |
|
|
|
|
Directors of the Company control 1.2 percent of the voting shares of the Company. |
|
|
|
On November 30, 2010, loans granted to key management personnel under share purchase plan (note
15 (iii)) amount to $22 as at November 30, 2010 ($75 as at November 30, 2009 and $59 as at
December 1, 2008). |
|
26. |
|
Subsequent events: |
|
|
|
Distribution and licensing agreement: |
|
|
|
On December 6, 2010, the Company announced the signing of a distribution and licensing
agreement with Sanofi-aventis (Sanofi), covering the commercial rights for EGRIFTA in
Latin America, Africa, and the Middle East for the treatment of excess abdominal fat in
HIV-infected patients with lipodystrophy. |
|
|
|
Under the terms of the agreement, the Company will sell EGRIFTA to Sanofi at a transfer price
equal to the higher of a percentage of Sanofis net selling price and a predetermined floor
price. The Company has retained all future development rights to EGRIFTA and will be
responsible for conducting research and development for any additional potential indications.
Sanofi will be responsible for conducting all regulatory activities for EGRIFTA in the
aforementioned territories, including applications for approval in the different countries for
the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy. The Company
also granted Sanofi an option to commercialize tesamorelin for other indications in the
territories mentioned above. If such option is not exercised, or is declined, by Sanofi, the
Company may commercialize tesamorelin for such indications on its own or with a third party. |
45
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
26. |
|
Subsequent events (continued): |
|
|
|
Distribution and licensing agreement (continued): |
|
|
|
On February 3, 2011, the Company entered into a distribution and licensing agreement with
Ferrer covering the commercial rights for EGRIFTATM for the treatment of
excess abdominal fat in HIV-infected patients with lipodystrophy in Europe, Russia, South
Korea, Taiwan, Thailand and certain central Asian countries. |
|
|
|
Under the terms of the Agreement, the Company will sell EGRIFTATM to
Ferrer at a transfer price equal to the higher of a significant percentage of the Ferrers net
selling price and a predetermined floor price. The Company has retained all development rights
to EGRIFTATM for other indications and will be responsible for
conducting research and development for any additional programs. Ferrer will be responsible for
conducting all regulatory and commercialization activities in connection with
EGRIFTATM for the treatment of excess abdominal fat in HIV-infected
patients with lipodystrophy in the territories subject to the agreement. The Company will be
responsible for the manufacture and supply of EGRIFTATM to Ferrer. The
Company has the option to co-promote EGRIFTATM for the reduction of
excess abdominal fat in HIV-infected patients with lipodystrophy in the territories. Ferrer has
the option to enter into a co-development and commercialization agreement using tesamorelin
relating to any such new indications. The terms and conditions of such a co-development and
commercialization agreement will be negotiated based on any additional program chosen for
development. |
|
|
|
Deferred share unit plan: |
|
|
|
In December 2010, the Company adopted a deferred share unit plan (Plan) to provide
long-term incentive compensation for its directors and executive officers. Under the Plan,
directors must receive their annual remuneration as a board member in fully vested deferred
share units (DSUs) until they reach a percentage of their annual remuneration and, once
such percentage is attained, they have the option to elect to receive part or all of this
annual remuneration in DSUs. Under the plan, executive officers have the option of receiving
all or a portion of their annual bonus in the form of fully-vested DSUs. The units are only
redeemable for cash when a participant ceases to be an employee or member of the Board of
Directors. The Company manages the risk associated with the issuance of the DSU by entering
into a yearly forward contract with a third party. As at February 7, 2011, all of the 99,912
DSU outstanding were covered by a prepaid forward contract. |
|
|
|
Stock option plan: |
|
|
|
Between December 1, 2010 and February 7, 2011, the Company granted 250,000 options at an
exercise price of $5.65 per share. Also 27,832 options were forfeited and expired at a weighted
exercise average price of $12.06 per share. Furthermore, 3,000 options were exercised at a
weighted exercise average price of $1.80 per share for a cash consideration of $5. |
46
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
27. |
|
Transition to IFRS: |
|
|
|
As stated in note 2 (a), these are the Companys first consolidated financial statements
prepared in accordance with IFRSs. The Company has applied IFRS 1 and the accounting policies
set out in note 3 in preparing the financial statements for the year ended November 30, 2010,
the comparative information presented in these financial statements for the year ended November
30, 2009 and in the opening IFRS statement of financial position at December 1, 2008 (the
Companys date of transition). |
|
|
|
In preparing these consolidated financial statements in accordance with IFRS 1, the Company has
applied the mandatory exceptions and certain of the optional exemptions from full retrospective
application of IFRSs. |
|
|
|
The Company elected to apply the following optional exemptions from full retrospective
application: |
|
(i) |
|
Share-based payment transaction exemption: |
|
|
|
|
The Company has elected to apply the share-based payment exemption. It applied IFRS 2 from
December 1, 2008 to those stock options that were issued after November 7, 2002 but that
had not vested by December 1, 2008. The application of the exemption is detailed below. |
|
|
(ii) |
|
Designation of financial assets and financial liabilities exemption: |
|
|
|
|
The Company elected to re-designate cash from the held-for-trading category to loans and
receivables. |
|
|
As required by IFRS 1, estimates made under IFRS at the date of transition must be consistent
with estimates made for the same date under previous GAAP, unless there is evidence that those
estimates were in error. |
|
|
|
In preparing its opening IFRS consolidated statement of financial position, the Company has
adjusted amounts reported previously in financial statements prepared in accordance with
Canadian GAAP. |
|
|
|
An explanation of how the transition from previous Canadian GAAP to IFRS has affected the
Companys financial position, financial performance and cash flows is set out in the following
tables and accompanying notes. |
47
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
27. |
|
Transition to IFRS (continued): |
|
|
|
Reconciliation of equity as at December 1, 2008 and November 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2008 |
|
|
November 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
IFRS |
|
|
IFRS |
|
|
|
|
|
|
|
|
|
|
IFRS |
|
|
IFRS |
|
|
|
|
|
|
|
|
|
|
Canadian |
|
|
adjust- |
|
|
reclassi- |
|
|
|
|
|
|
Canadian |
|
|
adjust- |
|
|
reclassi- |
|
|
|
|
|
|
Note |
|
|
GAAP |
|
|
ments |
|
|
fications |
|
|
IFRS |
|
|
GAAP |
|
|
ments |
|
|
fications |
|
|
IFRS |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
1,519 |
|
|
|
|
|
|
|
|
|
|
|
1,519 |
|
Bonds |
|
|
|
|
|
|
10,955 |
|
|
|
|
|
|
|
|
|
|
|
10,955 |
|
|
|
10,036 |
|
|
|
|
|
|
|
|
|
|
|
10,036 |
|
Trade and other
receivables |
|
|
|
|
|
|
610 |
|
|
|
|
|
|
|
|
|
|
|
610 |
|
|
|
375 |
|
|
|
|
|
|
|
|
|
|
|
375 |
|
Tax credits and
grants receivable |
|
|
(a |
) |
|
|
1,784 |
|
|
|
|
|
|
|
(333 |
) |
|
|
1,451 |
|
|
|
1,666 |
|
|
|
|
|
|
|
(333 |
) |
|
|
1,333 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,225 |
|
|
|
|
|
|
|
|
|
|
|
2,225 |
|
Research supplies |
|
|
(a |
) |
|
|
301 |
|
|
|
|
|
|
|
(301 |
) |
|
|
|
|
|
|
287 |
|
|
|
|
|
|
|
(287 |
) |
|
|
|
|
Prepaid expenses |
|
|
(a |
) |
|
|
397 |
|
|
|
|
|
|
|
342 |
|
|
|
739 |
|
|
|
302 |
|
|
|
|
|
|
|
328 |
|
|
|
630 |
|
|
Total current assets |
|
|
|
|
|
|
14,180 |
|
|
|
|
|
|
|
(292 |
) |
|
|
13,888 |
|
|
|
16,410 |
|
|
|
|
|
|
|
(292 |
) |
|
|
16,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
|
|
|
|
35,249 |
|
|
|
|
|
|
|
|
|
|
|
35,249 |
|
|
|
51,807 |
|
|
|
|
|
|
|
|
|
|
|
51,807 |
|
Property and equipment |
|
|
|
|
|
|
1,299 |
|
|
|
|
|
|
|
|
|
|
|
1,299 |
|
|
|
1,229 |
|
|
|
|
|
|
|
|
|
|
|
1,229 |
|
Other assets |
|
|
(a |
) |
|
|
2,817 |
|
|
|
|
|
|
|
(41 |
) |
|
|
2,776 |
|
|
|
41 |
|
|
|
|
|
|
|
(41 |
) |
|
|
|
|
|
Total non-current assets |
|
|
|
|
|
|
39,365 |
|
|
|
|
|
|
|
(41 |
) |
|
|
39,324 |
|
|
|
53,077 |
|
|
|
|
|
|
|
(41 |
) |
|
|
53,036 |
|
|
Total assets |
|
|
|
|
|
|
53,545 |
|
|
|
|
|
|
|
(333 |
) |
|
|
53,212 |
|
|
|
69,487 |
|
|
|
|
|
|
|
(333 |
) |
|
|
69,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities |
|
|
(a |
) |
|
|
7,198 |
|
|
|
|
|
|
|
(333 |
) |
|
|
6,865 |
|
|
|
5,901 |
|
|
|
|
|
|
|
(333 |
) |
|
|
5,568 |
|
Current portion of
deferred revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,847 |
|
|
|
|
|
|
|
|
|
|
|
6,847 |
|
|
Total current liabilities |
|
|
|
|
|
|
7,198 |
|
|
|
|
|
|
|
(333 |
) |
|
|
6,865 |
|
|
|
12,748 |
|
|
|
|
|
|
|
(333 |
) |
|
|
12,415 |
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,691 |
|
|
|
|
|
|
|
|
|
|
|
13,691 |
|
|
Total non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,691 |
|
|
|
|
|
|
|
|
|
|
|
13,691 |
|
|
Total liabilities |
|
|
|
|
|
|
7,198 |
|
|
|
|
|
|
|
(333 |
) |
|
|
6,865 |
|
|
|
26,439 |
|
|
|
|
|
|
|
(333 |
) |
|
|
26,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
|
|
|
|
269,219 |
|
|
|
|
|
|
|
|
|
|
|
269,219 |
|
|
|
279,169 |
|
|
|
|
|
|
|
|
|
|
|
279,169 |
|
Contributed surplus |
|
|
(b |
) |
|
|
5,585 |
|
|
|
175 |
|
|
|
|
|
|
|
5,760 |
|
|
|
6,484 |
|
|
|
273 |
|
|
|
|
|
|
|
6,757 |
|
Deficit |
|
|
(b |
) |
|
|
(228,829 |
) |
|
|
(175 |
) |
|
|
|
|
|
|
(229,004 |
) |
|
|
(243,887 |
) |
|
|
(273 |
) |
|
|
|
|
|
|
(244,160 |
) |
Accumulated other
comprehensive income |
|
|
|
|
|
|
372 |
|
|
|
|
|
|
|
|
|
|
|
372 |
|
|
|
1,282 |
|
|
|
|
|
|
|
|
|
|
|
1,282 |
|
|
Total equity |
|
|
|
|
|
|
46,347 |
|
|
|
|
|
|
|
|
|
|
|
46,347 |
|
|
|
43,048 |
|
|
|
|
|
|
|
|
|
|
|
43,048 |
|
|
Total liabilities and equity |
|
|
|
|
|
|
53,545 |
|
|
|
|
|
|
|
(333 |
) |
|
|
53,212 |
|
|
|
69,487 |
|
|
|
|
|
|
|
(333 |
) |
|
|
69,154 |
|
|
48
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
27. |
|
Transition to IFRS (continued): |
|
|
|
Reconciliation of comprehensive income for the year ended November 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS |
|
|
IFRS |
|
|
|
|
|
|
|
|
|
|
Canadian |
|
|
adjust- |
|
|
reclassi- |
|
|
|
|
|
|
Note |
|
|
GAAP |
|
|
ments |
|
|
fication |
|
|
IFRS |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milestone payments |
|
|
(c |
) |
|
|
|
|
|
|
|
|
|
|
10,884 |
|
|
|
10,884 |
|
Upfront payments and initial technology access fees |
|
|
(c |
) |
|
|
|
|
|
|
|
|
|
|
6,560 |
|
|
|
6,560 |
|
Royalties and license fees |
|
|
(c |
) |
|
|
17,468 |
|
|
|
|
|
|
|
(17,444 |
) |
|
|
24 |
|
Interest |
|
|
(c |
) |
|
|
2,252 |
|
|
|
|
|
|
|
(2,252 |
) |
|
|
|
|
|
Total revenue |
|
|
|
|
|
|
19,720 |
|
|
|
|
|
|
|
(2,252 |
) |
|
|
17,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net of tax credits |
|
|
(b), |
(c) |
|
|
20,431 |
|
|
|
33 |
|
|
|
346 |
|
|
|
20,810 |
|
Selling and market development expenses |
|
|
(b), |
(c) |
|
|
2,583 |
|
|
|
10 |
|
|
|
4,269 |
|
|
|
6,862 |
|
General and administrative expenses |
|
|
(b), |
(c) |
|
|
7,149 |
|
|
|
55 |
|
|
|
(661 |
) |
|
|
6,543 |
|
Patents |
|
|
(c |
) |
|
|
346 |
|
|
|
|
|
|
|
(346 |
) |
|
|
|
|
Fees associated with the collaboration and licensing
agreement |
|
|
(c |
) |
|
|
4,269 |
|
|
|
|
|
|
|
(4,269 |
) |
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
34,778 |
|
|
|
98 |
|
|
|
(661 |
) |
|
|
34,215 |
|
|
Results from operating activities |
|
|
|
|
|
|
(15,058 |
) |
|
|
(98 |
) |
|
|
(1,591 |
) |
|
|
(16,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
(c |
) |
|
|
|
|
|
|
|
|
|
|
2,252 |
|
|
|
2,252 |
|
Finance costs |
|
|
(c |
) |
|
|
|
|
|
|
|
|
|
|
(661 |
) |
|
|
(661 |
) |
|
Total net finance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,591 |
|
|
|
1,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
(15,058 |
) |
|
|
(98 |
) |
|
|
|
|
|
|
(15,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of available-for-sale financial assets |
|
|
|
|
|
|
1,039 |
|
|
|
|
|
|
|
|
|
|
|
1,039 |
|
Net change in fair value of available-for-sale financial assets
transferred to net profit (loss) |
|
|
|
|
|
|
(129 |
) |
|
|
|
|
|
|
|
|
|
|
(129 |
) |
|
Other comprehensive income for the year |
|
|
|
|
|
|
910 |
|
|
|
|
|
|
|
|
|
|
|
910 |
|
|
Total comprehensive income for the year |
|
|
|
|
|
|
(14,148 |
) |
|
|
(98 |
) |
|
|
|
|
|
|
(14,246 |
) |
|
|
|
Material adjustments to the consolidated statement of cash flows for 2009: |
|
|
|
There are no material differences between the consolidated statement of cash flows presented
under IFRS and the consolidated statement of cash flows presented under previous Canadian GAAP. |
49
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
27. |
|
Transition to IFRS (continued): |
|
|
|
Notes to the reconciliations: |
|
(a) |
|
Reclassification in the consolidated statement of financial position: |
|
|
|
|
Certain corresponding figures as at December 1, 2008 and November 30, 2009 have been
reclassified to conform to the new presentation under IFRS. |
|
|
(b) |
|
Share-based compensation: |
|
|
|
|
In certain situations, stock options granted vest in instalments over a specified vesting
period. When the only vesting condition is service from the grant date to the vesting date
of each tranche awarded, then each instalment should be accounted for as a separate
share-based payment arrangement under IFRS, otherwise known as graded vesting. Canadian
GAAP permits an entity the accounting policy choice with respect to graded vesting awards.
Each instalment can be considered as a separate award, each with a different vesting
period, consistent with IFRS, or the arrangement can be treated as a single award with a
vesting period based on the average vesting period of the instalments depending on the
policy elected. |
|
|
|
|
The Companys policy under Canadian GAAP was to treat graded vesting awards under the
latter method and, as a result, an adjustment of $175 was required on the application of
IFRS 2 at the transition date, and an adjustment of $98 was required for the restated 2009
comparative balances as shown below: |
|
|
|
|
|
|
|
|
|
|
|
December 1, |
|
|
November 30, |
|
|
|
2008 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Consolidated statement of comprehensive income: |
|
|
|
|
|
|
|
|
Increase in research and development expenses |
|
|
|
|
|
|
33 |
|
Increase in selling and market development expenses |
|
|
|
|
|
|
10 |
|
Increase in general and administrative expenses |
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
Adjustment to net loss and total comprehensive loss |
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
Deficit |
|
|
(175 |
) |
|
|
(273 |
) |
Increase in contributed surplus |
|
|
175 |
|
|
|
273 |
|
|
50
THERATECHNOLOGIES INC.
Notes to the Consolidated Financial Statements, Continued
Years ended November 30, 2010 and 2009 and as at December 1, 2008
(in thousands of Canadian dollars, except per share amounts)
27. |
|
Transition to IFRS (continued): |
|
|
|
Notes to the reconciliations (continued): |
|
(c) |
|
Reclassification in the consolidated statement of comprehensive income: |
|
|
|
|
Under IFRS, the Company elected to present expenses using a classification based on their
function and presents net finance income separately. The effect of these changes is
summarized below: |
|
|
|
|
|
|
|
November 30, |
|
|
|
2009 |
|
|
|
$ |
|
Decrease in interest |
|
|
(2,252 |
) |
Increase in finance income |
|
|
2,252 |
|
Increase in research and development expenses |
|
|
346 |
|
Decrease in patent fees |
|
|
(346 |
) |
Decrease in general and administrative expenses |
|
|
(661 |
) |
Increase in finance costs |
|
|
661 |
|
Increase in selling and market development expenses |
|
|
4,269 |
|
Decrease in fees associated with the collaboration and licensing agreement |
|
|
(4,269 |
) |
|
|
|
|
|
|
|
|
|
|
Changes in presentation were also made to the revenue caption in order to conform with
the new presentation under IFRS as noted below: |
|
|
|
|
|
|
|
November 30, |
|
|
|
2009 |
|
|
|
$ |
|
Decrease in royalties and license fees |
|
|
(17,444 |
) |
Increase in upfront payments and initial technology access fees |
|
|
6,560 |
|
Increase in milestone payments |
|
|
10,884 |
|
|
|
|
|
|
|
|
|
|
|
|
51
EX-4.3
Exhibit 4.3
Forward-Looking Information
This Managements discussion and analysis (MD&A) 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 preparation
and filing of applications seeking regulatory approval of EGRIFTATM in the treatment of
excess abdominal fat in HIV-infected patients with lipodystrophy in various territories outside of
the United States, the revenue to be generated as a result of sales of EGRIFTATM to EMD
Serono, Inc., (EMD Serono), the receipt of royalties from EMD Serono in connection with the sale
of EGRIFTATM in the United States, and the development of tesamorelin in a new clinical
program for a new indication. Furthermore, the words 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 future or conditional tenses 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 Companys 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 are described under the section Risks and
Uncertainties on page 21 and include, but are not limited to, the risk that EGRIFTATM
is not approved in all or some of the territories referred to in this MD&A, the revenue and
royalties we expect to generate from sales of EGRIFTATM is lower than anticipated, the
supply of EGRIFTATM to our commercial partners is delayed or suspended as a result of
problems with our suppliers, EGRIFTATM is withdrawn from the market as a result of
defects or recalls, our intellectual property is not adequately protected and our liquidity level
decreases based on unexpected activities that must be carried out in order to achieve our business
plan.
Although the forward-looking information contained in this MD&A is based upon what we believe are
reasonable assumptions, investors are cautioned against placing undue reliance on this information
since actual results may vary materially from the forward-looking information contained in this
MD&A. Certain assumptions made in preparing the forward-looking information include the assumption
that tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy will receive approval in the territories referred to in this MD&A, no additional
clinical studies will be required to obtain said regulatory approval of tesamorelin,
EGRIFTATM will be accepted by the marketplace in the United States and will be on the
list of reimbursed drugs by third-party payers, our relations with third-party suppliers of
EGRIFTATM will be conflict-free and that such third-party suppliers will have enough
capacity to manufacture and supply EGRIFTATM to meet its demand and on a timely-basis
and that our business plan will not be substantially modified.
Consequently, all of the forward-looking information contained in this MD&A is qualified by the
foregoing cautionary statements, and there can be no guarantee that the results or developments
that we anticipate will be realized or, even if substantially realized, that they will have the
expected consequences or effects on our business, financial condition or results of operation.
Managements Discussion and Analysis
The following discussion and analysis provides managements point of view on the financial position
and the results of operations of Theratechnologies Inc., on a consolidated basis for the
twelve-month periods ended November 30, 2010 (fiscal 2010) and November 30, 2009 (fiscal 2009).
Unless otherwise indicated or unless the context requires otherwise, all references in this MD&A to
Theratechnologies, the Company, we, us, our or similar terms refer to Theratechnologies
Inc. and its consolidated subsidiaries. This information is dated February 8, 2011, and should be
read in conjunction with the Audited Consolidated Financial Statements and the accompanying notes.
Unless specified otherwise, all amounts are in Canadian dollars. In this MD&A, the use of
EGRIFTATM refers to tesamorelin for the reduction of excess abdominal fat in
HIV-infected patients with lipodystrophy regardless of the trade name used for such product in any
particular territory. EGRIFTATM is the trade name used in the United States for
tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
Except as otherwise indicated, the financial information contained in this MD&A and in our Audited
Consolidated Financial Statements has been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Our financial statements were previously prepared in accordance with Canadian Generally Accepted
Accounting Principles (GAAP). For more information regarding the conversion to IFRS, please refer
to the heading Conversion to IFRS in this MD&A and to note 27 of the Audited Consolidated
Financial Statements, which are our first consolidated financial statements prepared in accordance
with IFRS.
The Audited Consolidated Financial Statements and MD&A have been reviewed by our Audit Committee
and approved by our Board of Directors.
Overview
We are a specialty pharmaceutical company that discovers and develops innovative therapeutic
peptide products with an emphasis on growth-hormone releasing factor peptides. We are leveraging
our expertise in the field of metabolism to discover and develop products in specialty markets. Our
commercialization strategy is to retain all or a significant portion of the commercial rights to
our products. Our first product, EGRIFTA (tesamorelin for injection), was approved by the United
States Food and Drug Administration (FDA) in November 2010. To date, EGRIFTA is the only
approved therapy for the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy.
Lipodystrophy in HIV-infected patients presents a serious medical condition, affecting
approximately 29% of all diagnosed and treated HIV-infected patients. This condition is associated
with a range of physiological and psychological complications beyond the significant health and
mortality risks of the HIV infection itself. EGRIFTA is currently marketed in the United States by
EMD Serono, Inc. (EMD Serono), an affiliate of Merck KGaA, pursuant to a collaboration and
licensing agreement entered into by us and EMD Serono in October 2008. In addition, we have signed
distribution and licensing agreements with Sanofi Winthrop Industries, an affiliate of
Sanofi-aventis (collectively, Sanofi), for the commercialization rights for EGRIFTA for the
reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in Latin America,
Africa and the Middle East and with Ferrer Internacional S.A. (Ferrer) for the commercialization
rights for EGRIFTA for the reduction of excess abdominal fat in HIV-
- 2 -
infected patients with lipodystrophy in Europe, Russia, South Korea, Taiwan, Thailand and certain
central Asian countries. EGRIFTA is the trade name used in the United States for tesamorelin for
the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
The first six months of fiscal 2010 were devoted to preparing for a public meeting with the
Endocrinologic and Metabolic Drugs Advisory Committee, which the FDA of the United States had asked
us to attend in the context of its review of our New Drug Application (NDA) for EGRIFTA. As an
integral part of the FDA review process for a NDA, the principal role of an advisory committee is
to provide an independent point of view to enhance the quality of the agencys regulatory
decision-making process. At the public meeting held on May 27, 2010, the committee of experts
unanimously recommended to the FDA, the approval of EGRIFTA.
In the second half of fiscal 2010, we focused primarily on responding to the FDAs questions and
began building our inventory in anticipation of the launch of EGRIFTA in the United States. We
were also focused on securing strategic alliances for the commercialization of EGRIFTA in
territories outside of the United States.
On November 10, 2010, the FDA approved EGRIFTA as the first approved treatment in the United
States for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy. By
virtue of the collaboration and licensing agreement entered into in 2008 with EMD Serono, we
received a milestone payment of US$25,000,000 associated with the FDA-approval of EGRIFTA. This
payment was received by us on November 30, 2010. Under the collaboration and licensing agreement,
EMD Serono has the exclusive right to commercialize EGRIFTATM in the United States for
the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
Concurrent with these regulatory activities in fiscal 2010, our third-party suppliers began
manufacturing inventory of EGRIFTA in preparation for the launch of EGRIFTA in the United States
by our commercial partner, EMD Serono. The first product shipment of EGRIFTA took place in
December 2010.
Fiscal 2010 was also marked by a change in our management. On December 1, 2010, John-Michel T.
Huss, previously Chief of Staff, Office of the CEO, of Sanofi in Paris, became our President and
Chief Executive Officer. Mr. Huss replaced Yves Rosconi who, in June 2010, announced his desire to
retire after six years as the head of the Company.
On December 6, 2010, we entered into a distribution and licensing agreement with Sanofi granting
them the exclusive commercialization rights of EGRIFTATM for the treatment of excess
abdominal fat in HIV-infected patients with lipodystrophy in Latin America, Africa and the Middle
East.
On February 3, 2011, we entered into a distribution and license agreement with Ferrer granting them
the exclusive commercialization rights of tesamorelin for the treatment of excess abdominal fat in
HIV-infected patients with lipodystrophy in Europe, Russia, South Korea, Taiwan, Thailand and
certain central Asian countries.
Financial Position
We completed fiscal 2010 with a liquidity position of $64,882,000, consisting of $64,550,000 of
cash and highly liquid bonds, and $332,000 of tax credits and grants receivable.
- 3 -
Economic Environment
In 2008 and 2009, capital markets were characterized by significant stock market volatility and a
notable decline in access to capital, particularly for the biotechnology industry. An economic
slowdown occurred in almost all sectors and the general decline of the capital markets had a
negative effect on the cost of capital for companies.
In early 2010, the situation remained challenging and it was only in the second half of the year
that we began to see an improvement in economic conditions, which resulted in better access to
capital and lower credit risk. Interest rates, however, remained extremely low throughout the year.
Despite the improvement in general market conditions, our investment policy continues to be
conservative. We have invested our funds in highly liquid, low-risk instruments as described under
the heading Liquidity and capital resources.
Perspectives for 2011
In 2011, our focus is to maximize the global opportunities for EGRIFTATM and
tesamorelin. In order to do so we intend to:
|
|
|
Support our commercial partner, EMD Serono, in commercializing EGRIFTATM
in the United States; |
|
|
|
|
Support our commercial partner, Sanofi, in seeking regulatory approval of
EGRIFTATM in Latin America, Africa and the Middle-East for potential
commercialization; |
|
|
|
|
Support our commercial partner, Ferrer, in seeking regulatory approval of
EGRIFTATM in Europe, Russia, South Korea, Taiwan, Thailand and certain central
Asian countries for potential commercialization; |
|
|
|
|
Assess expansion opportunities into other territories where EGRIFTATM
could be used for the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy; |
|
|
|
|
Initiate a new clinical program evaluating tesamorelin in a new indication; |
|
|
|
|
Continue working on EGRIFTATM. We have developed a new presentation of
EGRIFTATM which is easier to use than its current presentation. This new
presentation complies with one of the FDAs post-approval requirements. See Post-Approval
Commitments; and |
|
|
|
|
Develop a new formulation for EGRIFTATM pursuant to our agreement with EMD
Serono. |
- 4 -
Selected Annual Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statement of comprehensive income |
|
|
|
|
|
|
YEARS ENDED NOVEMBER 30 (in thousands of |
|
|
|
|
|
|
Canadian dollars, except per share amounts) |
|
2010 |
|
2009 |
|
2008(1) |
|
Revenue(2) |
|
$ |
31,868 |
|
|
$ |
17,468 |
|
|
$ |
2,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net of tax
credits |
|
$ |
14,064 |
|
|
$ |
20,810 |
|
|
$ |
33,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results from operating activities |
|
$ |
6,663 |
|
|
$ |
(16,747 |
) |
|
$ |
(48,611 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financial income |
|
$ |
2,381 |
|
|
$ |
1,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) |
|
$ |
8,930 |
|
|
$ |
(15,156 |
) |
|
$ |
(48,611 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share |
|
$ |
0.15 |
|
|
$ |
(0.25 |
) |
|
$ |
(0.85 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statement of financial position |
|
|
|
|
|
|
AT NOVEMBER 30 (in thousands of Canadian |
|
|
|
|
|
|
dollars) |
|
2010 |
|
2009 |
|
2008(1) |
|
Liquidities (cash and bonds) |
|
$ |
64,550 |
|
|
$ |
63,362 |
|
|
$ |
46,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax credits and grants receivable |
|
$ |
332 |
|
|
$ |
1,333 |
|
|
$ |
1,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
71,651 |
|
|
$ |
69,154 |
|
|
$ |
53,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share capital |
|
$ |
279,398 |
|
|
$ |
279,169 |
|
|
$ |
269,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
$ |
52,656 |
|
|
$ |
43,048 |
|
|
$ |
46,347 |
|
|
|
|
(1) |
|
We adopted IFRS in fiscal 2010 with a transition date of December 1, 2008.
Consequently, the selected financial information for the year ended November 30, 2008, as presented
in our 2009 Audited Consolidated Financial Statements, which were presented in conformity with
Canadian GAAP, was not restated in terms of IFRS and accordingly, is not comparable with the
information for fiscal 2010 and 2009. See Conversion to IFRS for the policy differences between
Canadian GAAP and IFRS. |
|
(2) |
|
Revenue in 2008 includes interest income of $2,427,000. Revenue in 2009 includes a
milestone payment of $10,884,000 received from EMD Serono following the FDAs acceptance to file
our NDA for EGRIFTATM. Revenue in 2010 includes a milestone payment of $25,000,000
received from EMD Serono following marketing approval of EGRIFTATM by the FDA. |
- 5 -
Operating Results
Revenue
Our consolidated revenue for the year ended November 30, 2010 was $31,868,000, compared to
$17,468,000 in 2009. The increased revenue in fiscal 2010 was related to the milestone payment of
US$25,000,000 (C$25,000,000) received by us from EMD Serono on November 30, 2010 associated with
the satisfaction of the condition of approval of EGRIFTATM by the FDA. In fiscal 2009, a
payment of US$10,000,000 (C$10,884,000) was received by us from EMD Serono following the acceptance
by the FDA of the Companys NDA for EGRIFTATM in conformity with the collaboration and
licensing agreement with EMD Serono.
The initial payment of US$22,000,000 (C$27,097,000) received on December 15, 2008, upon the closing
of the transaction with EMD Serono, has been deferred and is being amortized over its estimated
service period of four years on a straight-line basis. For the year ended November 30, 2010, an
amount of $6,846,000 related to this transaction was recognized as revenue. At November 30, 2010,
the deferred revenue related to this transaction recorded on the consolidated statement of
financial position amounted to $13,692,000.
We expect to generate revenue from sales of EGRIFTATM to EMD Serono throughout fiscal
2011. We also expect to receive royalties on sales of EGRIFTATM in the United States by
EMD Serono beginning in the second quarter of fiscal 2011 upon receipt and confirmation of the
sales report relating to the previous quarter. The royalty rate we receive from EMD Serono is based
on the level of annual net sales achieved, with the rate increasing as higher levels of net sales
are attained.
R&D Activities
For the year ended November 30, 2010, consolidated research and development (R&D) expenses, net
of tax credits, amounted to $14,064,000, compared to $20,810,000 in 2009, a decrease of 32.4%. The
majority of R&D expenses incurred in fiscal 2010 are related to follow-up on work derived from the
regulatory filing with the FDA, notably responding to the FDAs questions, and preparation for the
FDA Advisory Committee meeting. In parallel with the United States FDA review, we continued to
advance our regulatory filing in Europe and to work on a new presentation of the existing
formulation of EGRIFTATM. Furthermore, we are in the process of evaluating the
initiation of a new clinical program to develop tesamorelin for a new indication. In our discovery
and preclinical groups, we continued to develop new peptides and to advance our preclinical program
for acute kidney injury (AKI). In fiscal 2009, the expenses incurred were principally associated
with completing the Phase 3 clinical trials evaluating tesamorelin in HIV-associated lipodystrophy
and the preparation of the NDA, which was submitted to the FDA in May 2009. The significant decline
in R&D expenses was in accordance with our projected R&D expenses for fiscal 2010. We expect the
amount of our R&D expenses for fiscal 2011 to be similar to those of 2010.
Cost of Sales
In fiscal 2010, we began producing through our third-party suppliers inventories in anticipation of
the launch of EGRIFTATM in the United States. Cost of sales in fiscal 2010 related to
this activity amounted to $469,000 which includes a charge of $192,000, in order to value the
inventories at their net realizable value. This write-down was due to raw materials that were not
originally bought under the conditions of our current long-term procurement agreements. Cost of
sales also included unallocated costs related to the production fees associated with the start-up
of the manufacturing process. We expect the cost of sales to increase significantly over the next
fiscal
- 6 -
year as sales of EGRIFTATM grow and as we secure additional suppliers for raw materials
and finished products.
General and Administrative Expenses
For the year ended November 30, 2010, general and administrative expenses were $8,002,000, compared
to $6,543,000 for the same period in fiscal 2009.
The higher expenses for the year ended November 30, 2010 are primarily due to the cost and expenses
associated with professional fees for the recruitment of the new President and Chief Executive
Officer, increased corporate communication associated with the FDA Advisory Committee meeting and
FDA approval, and conversion of our financial statements to IFRS, as well as costs and expenses
related to variations in share-based compensation expenses. The expenses for the year ended
November 30, 2009 include the costs associated with the revision of our three-year business plan
which were not repeated in fiscal 2010.
Selling and Market Development Expenses
For the year ended November 30, 2010, selling and market development expenses were $2,670,000,
compared to $6,862,000 in fiscal 2009.
The selling and market development expenses in fiscal 2010 are principally composed of business
development expenses and market research outside the United States and the costs of managing the
agreement with EMD Serono. In
fiscal 2009, we incurred expenses totaling $4,269,000 in connection with professional fees related
to the transaction with EMD Serono.
Net Financial Income
For the year ended November 30, 2010, interest income was $1,562,000 compared to $2,123,000 in
fiscal 2009. The year-over-year decline is due to lower average cash positions and a decrease in
yield on our bond portfolio. Receipt of the $25,000,000 milestone payment from EMD Serono in
November 2010 strengthened the Companys cash position to a level comparable to that of year-end
2009. Finance costs in fiscal 2010 were a gain of $493,000 compared to an expense of $661,000 in
fiscal 2009. Finance costs in fiscal 2010 benefited from a net foreign currency gain of $511,000
compared to a net foreign currency loss of $635,000 in 2009.
Net Results
Reflecting the changes in revenue and expenses described above, we realized a net profit of
$8,930,000 ($0.15 per share) for the year ended November 30, 2010, compared to a net loss of
$15,156,000 ($0.25 loss per share) for the same period in fiscal 2009. The net profit included
revenue of $31,846,000 related to the collaboration and licensing agreement with EMD Serono.
- 7 -
Quarterly Financial Information
The following table is a summary of the unaudited consolidated operating results of the Company
presented in accordance with IFRS for the last eight quarters.
(in thousands of Canadian dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
Q4 |
|
Q3 |
|
Q2 |
|
Q1 |
|
Q4 |
|
Q3 |
|
Q2 |
|
Q1 |
|
Revenue |
|
$ |
26,717 |
|
|
$ |
1,717 |
|
|
$ |
1,717 |
|
|
$ |
1,717 |
|
|
$ |
1,718 |
|
|
$ |
12,601 |
|
|
$ |
1,717 |
|
|
$ |
1,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (net loss) |
|
$ |
21,299 |
|
|
$ |
(3,357 |
) |
|
$ |
(4,771 |
) |
|
$ |
(4,241 |
) |
|
$ |
(4,654 |
) |
|
$ |
5,779 |
|
|
$ |
(5,454 |
) |
|
$ |
(10,827 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings
(loss) per share |
|
$ |
0.35 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.10 |
|
|
$ |
(0.09 |
) |
|
$ |
(0.18 |
) |
As described above, the higher revenue in the third quarter of 2009 is related to the milestone
payment of $10,884,000 received from EMD Serono following the FDAs acceptance to file the
Companys NDA for EGRIFTATM. The higher revenue in the fourth quarter of 2010 is related
to the receipt from EMD Serono of a milestone payment of $25,000,000 following marketing approval
of EGRIFTATM by the FDA.
Fourth Quarter Comparison
Consolidated revenue for the three-month period ended November 30, 2010, amounted to $26,717,000,
compared to $1,718,000 for the same period in fiscal 2009. The higher revenue in the three-month
period ended November 30, 2010 is related to the milestone payment of $25,000,000 received at the
end of the fourth quarter, following marketing approval of EGRIFTATM by the FDA in the
United States.
Consolidated R&D expenses, net of tax credits, totaled $3,172,000 for the fourth quarter of 2010,
compared to $4,212,000 for the same period in 2009, a decrease of 24.7%. The R&D expenses incurred
in 2009 principally included expenses related to preparing for the FDA Advisory Committee meeting,
which was held on May 27, 2010. The R&D expenses incurred in the fourth quarter of fiscal 2010 were
mainly related to managing responses to the FDAs questions and the FDA approval process, in
addition to the advancement of our regulatory filing in Europe and on a new presentation of the
existing formulation of EGRIFTATM. Furthermore, we are in the process of evaluating the
initiation of a new clinical program to develop tesamorelin for a new indication. In our discovery
and preclinical groups, we continued to develop new peptides and to advance our preclinical program
in AKI.
General and administrative expenses were $2,036,000 in the fourth quarter of 2010, compared to
$1,563,000 for the same period in 2009. The higher expenses for 2010 are principally related to the
conversion of our financial statements to IFRS and FDA approval of EGRIFTATM in the
United States.
Selling and market development expenses amounted to $761,000 for the fourth quarter of 2010,
compared to $1,069,000 for the same period in 2009. The sales and market development
- 8 -
expenses in fiscal 2010 are principally composed of business development expenses outside the
United States and the costs of performing our obligations under the agreement with EMD Serono. The
increased costs in 2009 were principally due to market development costs in Europe to increase the
awareness of lipodystrophy as a disease.
Consequently, we recorded a net profit for the three-month period ended November 30, 2010, of
$21,299,000 ($0.35 per share), compared to a net loss of $4,654,000 ($0.08 per share) for the same
period in 2009.
In the three-month period ended November 30, 2010, cash flows from operating activities, excluding
changes in operating assets and liabilities, was $22,037,000, compared to a use of cash of
$4,333,000 for the same period in 2009.
Liquidity and Capital Resources
Our objective in managing capital is to ensure a sufficient liquidity position to finance our
research and development activities, general and administrative expenses, working capital and
capital spending.
To fund our activities, we have relied primarily on public offerings of common shares in Canada and
private placements of our common shares as well as on up-front payments and milestone payments
primarily associated with the agreement with EMD Serono. When possible, we try to optimize our
liquidity position using non-dilutive sources, including investment tax credits, grants and
interest income.
For the year ended November 30, 2010, cash flow from operating activities, excluding changes in
operating assets and liabilities, was $11,160,000 compared to a use of cash of $13,547,000 in
fiscal 2009. The cash flow generated in fiscal 2010 is principally related to payments received
under the agreement with EMD Serono as well as decreases in R&D expenses and in selling and market
development expenses.
At November 30, 2010, cash and bonds amounted to $64,550,000 and tax credits and grants receivable
amounted to $332,000, for a total of $64,882,000.
At this time, apart from our unused $1,800,000 revolving credit facility, we do not have any
additional arrangements for external debt financings, and are not certain whether any proposed debt
financing in the future, would be available on acceptable terms, or available at all. We may seek
additional capital through the incurrence of debt, the issuance of equity or other financing
alternatives.
We invest our available cash in highly liquid fixed income instruments from governmental, municipal
and paragovernmental bodies ($37,542,000 at November 30, 2010) as well as corporate bonds with high
credit ratings ($359,000 at November 30, 2010).
In the year ended November 30, 2010, the Company received share subscriptions amounting to $15,000
($96,000 in fiscal 2009) for the issuance of 2,880 common shares (34,466 in 2009) in connection
with the share purchase plan. Under the terms of the agreement with EMD Serono, we issued 2,179,837 common shares for a cash consideration of
US$8,000,000 (C$9,854,000) during the first quarter of 2009.
- 9 -
In fiscal 2010, our third-party suppliers began to manufacture inventory of EGRIFTATM
for commercialization in the United States. We expect to continue to build our inventory
until we reach an adequate level of finished goods to meet the needs of our partners and this will
significantly increase our working capital needs in fiscal 2011.
Contractual Obligations
Commitments
We rent our headquarters and main office pursuant to a lease expiring in April 2021. At November
30, 2010 and 2009, and at December 1, 2008, the minimum payments required under the terms of the
non-cancellable lease were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
December 1, |
|
(in thousands of Canadian dollars) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
Less than one year |
|
|
55 |
|
|
|
340 |
|
|
|
816 |
|
Between one and five years |
|
|
2,239 |
|
|
|
2,020 |
|
|
|
340 |
|
More than five years |
|
|
3,943 |
|
|
|
4,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,237 |
|
|
|
6,576 |
|
|
|
1,156 |
|
Long-Term Procurement Agreements
During and after the years ended November 30, 2010 and 2009, we entered into long-term procurement
agreements with third-party suppliers in anticipation of the commercialization of
EGRIFTATM.
Credit Facility
We have a $1,800,000 revolving credit facility, bearing interest at prime plus 0.5%. Under the term
of the revolving credit facility, the market value of investments held must always be equivalent to
150% of amounts drawn under the facility. If the market value falls below $7,000,000, we will
provide the bank with a first rank movable hypothec (security interest) of $1,850,000 on securities
judged satisfactory by the bank. As at November 30, 2010, we did not have any borrowings
outstanding under this credit facility.
Post-Approval Commitments
In connection with its approval, the FDA has required the following three post-approval commitments:
|
|
|
a single vial formulation of EGRIFTATM (the development of a new presentation of
the same formulation); |
|
|
|
|
a long-term observational safety study using EGRIFTATM; and |
|
|
|
|
a Phase 4 clinical trial using EGRIFTATM. |
We have developed a new presentation of EGRIFTATM which is more user-friendly than its
current presentation because we expect it to be quicker and easier for a patient to manipulate. In
the new presentation of the same formulation, EGRIFTATM will be available as a single
unit dose (one vial containing 2 mg of tesamorelin) of sterile, lyophilized powder to be
reconstituted with
- 10 -
sterile water for injection. This new presentation complies with the first of the FDAs
post-approval requirements. The FDA requires that this new presentation be available by November
2013.
The purpose of the long-term observational study required by the FDA is to evaluate the safety
of long-term administration of EGRIFTATM. The primary purpose of the Phase 4
clinical trial is to assess whether EGRIFTATM has an impact on diabetic retinopathy in
diabetic HIV-infected patients with lipodystrophy and excess abdominal fat. The FDA requires that
the proposals for the long-term observational safety study and Phase 4 clinical trial be completed
within six months of our having received approval to commercialize EGRIFTATM. Under the
terms of our collaboration and licensing agreement, EMD Serono is responsible for finalizing such
proposals. We will continue to support EMD Serono in developing and finalizing such proposals.
Contingent Liability
On July 26, 2010, we received a motion of authorization to institute a class action lawsuit against
the Company, a director and a former executive officer (the Motion). This 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
certain alleged adverse effects relating to the administration of EGRIFTATM. 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.
The Motion has not yet been heard by the Superior Court of Quebec and a date has not been set for
the hearing.
The Company has subscribed to insurance covering its potential liability and the potential
liability of its directors and officers in the performance of all their duties for the Company
subject to a $200,000 deductible. At November 30, 2010, an amount of $96,000 in legal fees had been
accrued and included in general and administrative expenses, of which $61,000 was paid during the
year and $35,000 remained in accounts payable and accrued liabilities.
Off-Balance Sheet Arrangements
We were not involved in any off-balance sheet arrangements for the year ended November 30,
2010, with the exception of the lease of our headquarters as described above.
Subsequent Events
Distribution and Licensing Agreements
On December 6, 2010, we announced the signing of a distribution and licensing agreement with Sanofi
covering the commercial rights for EGRIFTATM in Latin America, Africa, and the Middle East for the treatment of excess abdominal fat in HIV-infected patients with
lipodystrophy.
Under the terms of the Agreement, we will sell EGRIFTATM to Sanofi at a transfer price
equal to the higher of a percentage of Sanofis net selling price and a predetermined floor price.
We have retained all future development rights to EGRIFTATM and will be responsible for
conducting
- 11 -
research and development for any additional potential indications. Sanofi will be responsible for
conducting all regulatory activities for EGRIFTATM in the aforementioned territories,
including applications for approval in the different countries for the treatment of excess
abdominal fat in HIV-infected patients with lipodystrophy. We also granted Sanofi an option to
commercialize tesamorelin for other indications in the territories mentioned above. If such option
is not exercised, or is declined, by Sanofi, we may commercialize tesamorelin for such indications
on our own or with a third-party.
On February 3, 2011, we entered into a distribution and licensing agreement with Ferrer covering
the commercial rights for EGRIFTATM for the treatment of excess abdominal fat in
HIV-infected patients with lipodystrophy in Europe, Russia, South Korea, Taiwan, Thailand and
certain central Asian countries.
Under the terms of the Agreement, we will sell EGRIFTATM to Ferrer at a transfer price
equal to the higher of a significant percentage of Ferrers net selling price and a predetermined
floor price. We have retained all development rights to EGRIFTATM for other indications
and will be responsible for conducting research and development for any additional programs. Ferrer
will be responsible for conducting all regulatory and commercialization activities in connection
with EGRIFTATM for the treatment of excess abdominal fat in HIV-infected patients with
lipodystrophy in the territories subject to the agreement. We will be responsible for the
manufacture and supply of EGRIFTATM to Ferrer. We have the option to co-promote
EGRIFTATM for the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy in the territories. Ferrer has the option to enter into a co-development and
commercialization agreement using tesamorelin relating to any such new indications. The terms and
conditions of such a co-development and commercialization agreement will be negotiated based on any
additional program chosen for development.
Deferred Share Unit Plan
In December 2010, we adopted a deferred share unit plan (Plan) to provide long-term incentive
compensation for our directors and executive officers. Under the Plan, directors must receive their
annual remuneration as a board member in fully vested deferred share unites (DSUs) until they
reach a percentage of their annual remuneration and, once such percentage is attained, they have
the option to elect to receive part or all of their annual remuneration in DSUs. Under the plan,
executive officers have the option of receiving all or a portion of their annual bonus in the form
of fully-vested DSUs. The units are only redeemable for cash when a participant ceases to be an
employee or member of the Board of Directors. We manage the risk associated with the issuance of
the DSU by entering into a yearly forward contract with a third-party. As at February 7,
2011, all of the 99,912 DSUs outstanding were covered by a prepaid forward contract.
Stock Option Plan
Between December 1, 2010 and February 7, 2011, the Company granted 250,000 options at an exercise
price of $5.65 per share. Also, 27,832 options were forfeited and expired at a weighted exercise
average price of $12.06 per share and 3,000 options were exercised at a weighted exercise average
price of $1.80 per share for a cash consideration of $5,000.
- 12 -
Financial Risk Management
This section provides disclosure relating to the nature and extent of our exposure to risks
arising from financial instruments, including credit risk, liquidity risk, currency risk and
interest rate risk, and how we manage those risks.
Credit Risk
The Companys exposure to credit risk currently relates to accounts receivables with only one
customer (see note 4 of the Audited Consolidated Financial Statements). Credit risk is the risk of
an unexpected loss if a customer or counterparty to a financial instrument fails to meet its
contractual obligations. We regularly monitor credit risk exposure and take steps to mitigate the
likelihood of this exposure resulting in losses.
Financial instruments other than cash and trade and other receivables that potentially subject the
Company to significant credit risk consist principally of bonds. We invest our available cash in
highly liquid fixed income instruments from governmental, paragovernmental and municipal bodies
($37,542,000 as at November 30, 2010) as well as from companies with high credit ratings ($359,000
as at November 30, 2010). As at November 30, 2010, we were not exposed to any credit risk over the
carrying amount of the bonds.
Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they
become due. We manage liquidity risk through the management of our capital structure, as outlined
under Liquidity and Capital Resources. We also manage liquidity risk by continuously monitoring
actual and projected cash flows. The Board of Directors and/or the Audit Committee reviews and
approves our operating and capital budgets, as well as any material transactions out of the
ordinary course of business.
We have adopted an investment policy in respect of the safety and preservation of capital to ensure
that our liquidity needs are met. The instruments are selected with regard to the expected timing
of expenditures and prevailing interest rates.
The required payments on the contractual maturities of financial liabilities, as well as the
payments required under the terms of the operating lease, as at November 30, 2010, are presented in
notes 20 and 23 of the Audited Consolidated Financial Statements.
Currency Risk
We are exposed to financial risk related to the fluctuation of foreign exchange rates and the
degree of volatility of those rates. Currency risk is limited to the portion of our business
transactions denominated in currencies other than the Canadian dollar, primarily revenues from
milestone payments and expenses for research and development incurred in U.S. dollars, euros and
pounds sterling (GBP). We do not use derivative financial instruments to reduce our foreign
exchange exposure.
We manage currency risk by maintaining cash in U.S. dollars on hand to support U.S. forecasted cash
budgets for a maximum 12-month period. We do not currently view our exposure to the euro and GBP as a significant foreign exchange risk due to the limited volume of
transactions conducted by the Company in these currencies.
Exchange rate fluctuations for foreign currency transactions can cause cash flow as well as amounts
recorded in consolidated statement of comprehensive income to vary from period to
- 13 -
period and not necessarily correspond to those forecasted in operating budgets and projections.
Additional earnings variability arises from the translation of monetary assets and liabilities
denominated in currencies other than the Canadian dollar at the rates of exchange at each
consolidated statement of financial position date, the impact of which is reported as foreign
exchange gain or loss in the consolidated statement of comprehensive income. Given our policy on
the management of our U.S. foreign currency risk, we do not believe, a sudden change in foreign
exchange rates would impair or enhance our ability to pay our U.S. dollar denominated obligations.
The following table provides significant items exposed to currency risk as at November 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
(in thousands of dollars) |
|
$US |
|
|
EURO |
|
|
GBP |
|
|
Cash |
|
|
26,424 |
|
|
|
|
|
|
|
1 |
|
Trade and other receivables |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
(465 |
) |
|
|
(26 |
) |
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items exposed to currency risk |
|
|
25,959 |
|
|
|
(26 |
) |
|
|
(80 |
) |
The following exchange rates applied during the year ended November 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
Average rate |
|
Reporting date rate |
|
$US C$ |
|
|
1.0345 |
|
|
|
1.0266 |
|
EURO C$ |
|
|
1.3848 |
|
|
|
1.3326 |
|
GBP C$ |
|
|
1.6051 |
|
|
|
1.5969 |
|
|
In fiscal 2010, based on our foreign currency exposures noted above, varying the above foreign
exchange rates to reflect a 5% strengthening of the Canadian dollar would have increased the net
profit as follows, assuming that all other variables remained constant:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars) |
|
$US |
|
EURO |
|
GBP |
|
Increase in net profit |
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1,298 |
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(1 |
) |
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(4 |
) |
|
An assumed 5% weakening of the Canadian dollar would have had an equal but opposite effect on
the above currencies to the amounts shown above, assuming that all other variables remain constant.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market interest rates.
Our short-term bonds are invested at fixed interest rates and/or mature in the short-term.
Long-term bonds are also instruments that bear interest at fixed rates. The risk that we will
realize a
- 14 -
loss as a result of a decline in the fair value of our bonds is limited because these
investments, although they are classified as available for sale, are generally held to maturity.
The unrealized gains or losses on bonds are recorded in accumulated other comprehensive income.
Based on the value of our short and long-term bonds at November 30, 2010, an assumed 0.5% decrease
in market interest rates would have increased the fair value of these bonds and the accumulated
other comprehensive income by approximately $336,000; an assumed increase in interest rate of 0.5%
would have an equal but opposite effect, assuming that all other variables remained constant.
Cash bears interest at a variable rate. Trade and other receivables, accounts payable and accrued
liabilities bear no interest.
Based on the average value of variable interest-bearing cash during year ended November 30, 2010
($3,219,000), an assumed 0.5% increase in interest rates during such period would have increased
the future cash flow and the net profit by approximately $16,000; an assumed decrease of 0.5% would
have had an equal but opposite effect.
Financial Instruments
We have determined that the carrying values of our short-term financial assets and
liabilities, including cash, trade and other receivables as well as accounts payable and accrued
liabilities, approximate their fair value because of the relatively short period to maturity of the
instruments.
Bonds are stated at estimated fair value, determined by inputs that are primarily
based on broker quotes at the reporting date (level 2 inputs see note 22 Determination of
fair values).
Critical Accounting Estimates
Use of Estimates and the Exercise of Judgment
The preparation of our Audited Consolidated Financial Statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
Information about critical judgments in applying accounting policies and assumption and estimation
uncertainties that have the most significant effect on the amounts recognized in the consolidated
financial statements is included in the following notes to the Audited Consolidated Financial
Statements:
Note 4 Revenue and deferred revenue
Note 15 (iv) Stock option plan
Note 16 Income taxes
Note 18 Contingent liability
Other areas of judgement and uncertainty relate to the estimation of accruals for clinical trial
expenses, the recoverability of inventories, the measurement of the amount and assessment of the
recoverability of tax credits and grants receivable and capitalization of development expenditures.
- 15 -
Reported amounts and note disclosure reflect the overall economic conditions that are most likely
to occur and the anticipated measures management intends to take. Actual results could differ from
those estimates.
The above estimates and assumptions are reviewed regularly. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected.
Conversion to IFRS
In February 2008, the Accounting Standards Board of Canada (AcSB) announced that accounting
standards in Canada, as used by public companies, would converge with 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. In the fourth quarter, we filed a request to
adopt IFRS two years in advance of the date required under the AcSB, using December 1, 2008 as the
date of transition and December 1, 2009 as the changeover date. Our request was granted and as a
result, the consolidated financial statements for the year ended November 30, 2010 are our first
annual financial statements prepared in conformity with IFRS.
Because we had previously filed financial statements and MD&As for the first, second and third
quarters of 2010 with comparisons to 2009 in accordance with Canadian GAAP, these statements were
restated and re-filed on February 8, 2011 to reflect our adoption of IFRS. Periods prior to
December 1, 2008 have not been restated.
In preparing these first IFRS financial statements, we used the IFRS accounting policies in effect
as at November 30, 2010, including IFRS 1 First-time Adoption of International Financial
Reporting Standards (IFRS 1). IFRS 1 provides guidance for an entitys initial adoption of IFRS
and outlines that, in general, an entity applies the principles under IFRS retrospectively with
adjustments arising on conversion from Canadian GAAP to IFRS being directly recognized in retained
earnings as of the beginning of the first comparative financial statements presented. IFRS 1 also
requires companies adopting IFRS to reconcile equity and net earnings from the previously reported
Canadian GAAP amounts to the restated IFRS amounts. Our reconciliation of equity under Canadian
GAAP as at December 1, 2008, the date of transition, and as at November 30, 2009 to the restated
IFRS amounts are included in note 27 of the consolidated financial statements, as is the
reconciliation of comprehensive income for the year-ended November 30, 2009.
IFRS 1 also provides certain optional exemptions from retrospective application of certain IFRS
requirements as well as mandatory exceptions which prohibit retrospective application of standards.
We elected to apply the following optional exemptions from full retrospective application:
(i) IFRS 2 Share-based Payment: IFRS 1 encourages the application of IFRS 2, Share-based
Payment provisions to equity instruments granted on or before November 7, 2002, but permits
the application only to equity instruments granted after November 7, 2002 that were not
vested by the transition date. As permitted by this exemption, the Company applied IFRS 2
only to equity instruments granted after November 7, 2002 that were not vested by December
1, 2008.
(ii) Designation of financial assets and financial liabilities exemption: we elected to
redesignate cash from the held for trading category to loans and receivables.
- 16 -
We also followed the mandatory exemptions applicable to the Company as described below:
Estimates Hindsight cannot be used to create or revise estimates. Estimates previously
made under Canadian GAAP cannot be revised for application of IFRS except where necessary
to reflect any difference in accounting policies.
Impact of IFRS on the Companys Financial Statements
The adoption of IFRS resulted in some changes to our accounting policies that were applied in the
recognition, measurement and disclosure of balances and transactions in our financial statements.
However, none of the changes to our accounting policies resulted in significant changes to line
items within our financial statements.
The following provides a summary of our evaluation of important changes to accounting policies in
key areas:
IFRS 2, Share-based Payment (IFRS 2)
Under IFRS, when stock option awards vest gradually, each tranche is to be considered as a separate
award, while under Canadian GAAP, companies can make a policy choice to consider gradually vested
tranches as a single award. Similarly, the IFRS standard requires that forfeiture estimates be
established at the time of the initial fair value assessment of share-based payments rather than to
account for the forfeitures as they occur. Therefore, the compensation expense will have to be
recognized over the expected term of each tranche and take into account the impact of the
differences in accounting for forfeitures. As a result of this change, an amount of $175,000 was
recorded to deficit at the transition date, with the counterpart to contributed surplus.
IAS 36, Impairment of Assets (IAS 36)
Under Canadian GAAP impairment standards for non-financial assets, a write-down to estimated fair
value is recognized if the estimated undiscounted future cash flows from an asset or group of
assets are less than their carrying value. IAS 36 requires a write-down to be recognized if the
recoverable amount, determined as the higher of the estimated fair value less costs to sell or
value in use, is less than carrying value. We performed impairment testing as of December 1, 2008
and concluded that no impairment charge was required under IFRS. No impairment indicators were
identified for the period between the transition date and November 30, 2009 and November 30, 2010.
IAS 36 also permits the reversal of certain impairment charges where conditions have changed. We
reviewed past impairment charges and concluded that there was no justification for reversal of past
impairment charges.
IAS 1, Presentation of Financial Statements (IAS 1)
Financial statement presentation is addressed in conjunction with the related IFRS standards.
Certain additional disclosures were required in the notes to the financial statements and the
statement of comprehensive income was modified to reflect a presentation by function. The
reclassifications required as a result of this change are described in note 27 (c) of the
consolidated financial statements.
Other Standards
Our examination of all other standards, including for example, IAS 21 The Effects of Changes in
Foreign Exchange Rates, IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and IAS
18 Revenue, revealed no significant adjustment was necessary other than enhanced disclosures.
- 17 -
Note 27 of the consolidated financial statements for the year ended November 30, 2010 contains a
detailed description of our conversion to IFRS, including a line-by-line reconciliation of our
financial statements previously prepared under Canadian GAAP to those under IFRS as at November 30,
2009 and December 1, 2008.
Impact on the Business
The impact of the conversion to IFRS on the Company was minimal and therefore resulted in a limited
number of adjustments. Our systems easily accommodated the required changes. Our internal controls
and disclosure controls and procedures did not require significant modification as a result of its
conversion to IFRS. Furthermore, there was no impact on our contractual arrangements or compliance
thereto.
Impact on Information Systems and Technology
The transition had minimal impacts on our information systems. The areas where information systems
were most impacted were minor modifications to certain general ledger accounts, sub-ledgers and
end-user reports to accommodate IFRS accounting adjustments, recording, and heightened disclosures.
Impact on Internal Control over Financial Reporting and Disclosure Controls and Procedures
Our internal controls over financial reporting were also not significantly affected by the
transition to IFRS. The IFRS differences required presentation and process changes to report more
detailed information in the notes to the financial statements, as well as certain changes to the
recognition and measurement practices. Disclosure controls and procedures were adapted to take into
consideration the changes in recognition, measurement and disclosure practices but the impact was
minimal as well.
Impact on Financial Reporting Expertise
Training and education was provided to all members of the finance team who are directly affected by
the transition to IFRS. This training focused mainly on the process changes required and an
overview of the reasons behind the changes from a standards perspective.
New accounting policies
Certain pronouncements were issued by the IASB or International Financial Reporting
Interpretation Committee that are mandatory for annual periods beginning after January 1, 2010 or
later periods. Many of these updates are not applicable or are inconsequential to us and have been
excluded from the discussion below. The remaining pronouncements are being assessed to determine
their impact on our results and financial position:
Annual improvements to IFRS
The IASBs improvements to IFRS published in April 2009 contain fifteen amendments to twelve
standards that result in accounting changes for presentation, recognition or
measurement purposes largely for annual periods beginning on or after January 1, 2010, with early
adoption permitted. These amendments were considered by the Company and deemed to be not applicable
to the Company other than for the amendment to IAS 17 Leases relating to leases which include
both land and buildings elements. In this case, the Company early adopted this amendment.
- 18 -
The IASBs improvements to IFRS contain seven amendments that result in accounting changes for
presentation, recognition or measurement purposes. The most significant features of the IASBs
annual improvements project published in May 2010 are included under the specific revisions to
standards discussed below.
(i) |
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IFRS 3: |
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Revision to IFRS 3, Business Combinations: |
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Effective for annual periods beginning on or after July 1, 2010 with earlier adoption
permitted. |
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Clarification on the following areas: |
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the choice of measuring non-controlling interests at fair value or at the
proportionate share of the acquirees net assets applies only to instruments that
represent present ownership interests and entitle their holders to a proportionate
share of the net assets in the event of liquidation. All other components of
non-controlling interest are measured at fair value unless another measurement basis is
required by IFRS. |
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application guidance relating to the accounting for share-based payments in IFRS
3 applies to all share-based payment transactions that are part of a business
combination, including un-replaced awards (i.e., unexpired awards over the acquiree shares that remain outstanding rather than being replaced by the acquirer) and
voluntarily replaced share-based payment awards. |
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Amendment to IFRS 7, Financial Instruments: Disclosures: |
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Effective for annual periods beginning on or after January 1, 2011 with earlier
adoption permitted. |
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Multiple clarifications related to the disclosure of financial instruments and in
particular in regards to transfers of financial assets. |
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Amendment to IAS 1, Presentation of Financial Statements: |
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Effective for annual periods beginning on or after January 1, 2011 with earlier
adoption permitted. |
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Entities may present the analysis of the components of other comprehensive income
either in the statement of changes in equity or within the notes to the financial
statements. |
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Amendment to IAS 27, Consolidated and Separate Financial Statements: |
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Effective for annual periods beginning on or after January 1, 2011 with earlier
adoption permitted. |
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The 2008 revisions to this standard resulted in consequential amendments to IAS 21,
The Effects of Changes in Foreign Exchange Rates, IAS 28, Investments in Associates,
and IAS 31, Interests in Joint Ventures. IAS 27 now provides that these amendments are
to be applied prospectively. |
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Amendment to IAS 34, Interim Financial Reporting: |
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Effective for annual periods beginning on or after January 1, 2011 with earlier
adoption permitted. |
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The amendments place greater emphasis on the disclosure principles for interim
financial reporting involving significant events and transactions, including changes to |
- 19 -
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fair value measurements and the need to update relevant information from the most
recent annual report. |
New or revised standards and interpretations
In addition, the following new or revised standards and interpretations have been issued but are
not yet applicable to the Company:
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Amendments to IAS 24, Related Party Disclosures: |
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Effective for annual periods beginning on or after January 1, 2011 with earlier
adoption is permitted. |
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There are limited differences in the definition of what constitutes a related party;
however, the amendment requires more detailed disclosures regarding commitments. |
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(ii) |
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IFRS 8: |
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IFRS 8, Operating Segments: |
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Effective for annual periods beginning on or after January 1, 2010. |
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Requires purchase information about segment assets. |
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New standard IFRS 9, Financial Instruments: |
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Effective for annual periods beginning on or after January 1, 2013 with earlier
adoption permitted. |
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As part of the project to replace IAS 39, Financial Instruments: Recognition and
Measurement, this standard retains but simplifies the mixed measurement model and
establishes two primary measurement categories for financial assets. More specifically,
the standard: |
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deals with classification and measurement of financial
assets |
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establishes two primary measurement categories for financial assets:
amortized cost and fair value |
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classification depends on entitys business
model and the contractual cash flow characteristics of the financial asset |
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eliminates the existing categories: held to maturity, available for sale, and
loans and receivables. |
Certain changes were also made regarding the fair value option for financial liabilities and
accounting for certain derivatives linked to unquoted equity instruments.
Outstanding share data
At February 7, 2011, the common shares issued and outstanding were 60,515,764 while
outstanding options granted under the stock option plan were 3,068,306.
- 20 -
Disclosure controls and procedures and internal control over financial reporting
As at November 30, 2010, an evaluation of the design and operating effectiveness of our
disclosure controls and procedures, as defined in the rules of Canadian Securities Administrators,
was carried out. Based on that evaluation, the President and Chief Executive Officer and the Senior
Executive Vice-President and Chief Financial Officer concluded that the design and operating
effectiveness of those disclosure controls and procedures were effective.
Also as November 30, 2010, an evaluation of the design and operating effectiveness of internal
controls over financial reporting, as defined in the rules of the Canadian Securities
Administrators, was carried out to provide reasonable assurance regarding the reliability of
financial reporting and financial statement compliance with IFRS. Based on that evaluation, the
President and Chief Executive Officer and the Senior Executive Vice-President and Chief Financial
Officer concluded that the design and operating effectiveness of internal controls over financial
reporting were effective.
These evaluations were based on the framework established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, a
recognized control model, and the requirements of Multilateral Instrument 52-109 of the Canadian
Securities Administrators. A disclosure committee comprised of members of senior management assists
the President and Chief Executive Officer and the Senior Executive Vice-President and Chief
Financial Officer in their responsibilities.
All control systems, no matter how well designed, have inherent limitations, including the
possibility of human error and the circumvention or overriding of the controls or procedures. As a
result, there is no certainty that our disclosure controls and procedures or internal control over
financial reporting will prevent all errors or all fraud. There were no changes in our internal
controls over financial reporting that occurred during the year ended November 30, 2010 that have
materially affected, or are reasonably likely to materially affect, our internal controls over
financial reporting.
Risks and uncertainties
Investors should understand that we operate in a high risk industry. We have identified the
following risks and uncertainties that may have a material adverse effect on our business,
financial condition or operating results. Investors should carefully consider the risks described
below before purchasing our securities. The risks described below are not the only ones that we
face. Additional risks not presently known to us or that we currently believe are immaterial may
also significantly impair our business operations. Our business could be harmed by any of these
risks.
- 21 -
Risks Related to the Commercialization of our Product and Product Candidates
Our commercial success depends largely on the commercialization of EGRIFTATM; the
failure of EGRIFTATM to obtain commercial acceptance would have a material adverse
effect on us.
Our ability to generate revenues in the future is primarily based on the commercialization of
EGRIFTATM for the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy. In the short-term, these revenues should be primarily derived from the U.S. market
alone. Although we have entered into a collaboration and licensing agreement with EMD Serono for
the commercialization of EGRIFTATM in the United States, there can be no assurance that
EGRIFTATM will be successfully commercialized in the United States, or in any other
country. Although we are developing other peptides, all of them are at earlier stages of
development and none of them may reach the clinical trial phase, obtain regulatory approval or,
even if approved, be successfully commercialized.
The overall commercialization success of EGRIFTATM for the reduction of excess abdominal
fat in HIV-infected patients with lipodystrophy will depend on several factors, including:
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receipt of regulatory approvals for EGRIFTATM from
regulatory agencies in the territories other than the United States in which we
wish to expand the commercialization of tesamorelin; |
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market acceptance of EGRIFTATM by the medical community,
patients and third-party payors (such as governmental health administration
authorities and private health coverage insurers); |
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the amount of resources devoted by our commercial partners to
commercialize EGRIFTATM in their respective territories; |
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maintaining manufacturing and supply agreements to ensure the
availability of commercial quantities of EGRIFTATM through validated
processes; |
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the number of competitors in our market; and |
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protecting and enforcing our intellectual property and avoiding patent
infringement claims. |
The inability to commercialize EGRIFTATM in the United States for the reduction of
excess abdominal fat in HIV-infected patients with lipodystrophy in the short term would delay our
capacity to generate revenues and would have a material adverse effect on our financial condition
and operating results.
- 22 -
We are or will be dependent on a limited number of collaboration and licensing agreements for the
commercialization of EGRIFTATM in the United States, Europe, Latin America, Africa and
the Middle East. These agreements place the commercialization of EGRIFTATM in these
markets outside of our control.
Although our collaboration and licensing agreements with EMD Serono, Sanofi and Ferrer contain
provisions governing their respective responsibilities as partners for the commercialization of
EGRIFTATM in their respective territories, our dependence on these partners to
commercialize EGRIFTATM is subject to a number of risks, including:
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our limited control of the amount and timing of resources that our
commercial partners will be devoting to the commercialization, marketing and
distribution of tesamorelin, including obtaining patient reimbursement for
EGRIFTATM, which could adversely affect our ability to obtain or
maximize our royalty payments; |
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disputes or litigation that may arise between us and our commercial
partners, which could adversely affect the commercialization of tesamorelin, all
of which would divert our managements attention and our resources; |
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our commercial partners not properly defending our intellectual
property rights or using them in such a way as to expose us to potential
litigation, which could, in both cases, adversely affect the value of our
intellectual property rights; and |
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corporate reorganizations or changes in business strategies of our
commercial partners, which could adversely affect a commercial partners
willingness or ability to fulfill its obligations under its respective agreement. |
Our collaboration and licensing agreements may be terminated by our partners in the event of a
breach by us of our obligations under such agreements, including our obligation to supply
EGRIFTATM , for which we rely on third parties. Our collaboration and licensing
agreement with EMD Serono can also be terminated by EMD Serono for their convenience on 180 days
notice to us. Such a termination could have an adverse effect on our revenues related to the
commercialization of EGRIFTATM in the United States. In addition, EMD Serono has listed
a patent held by one of its affiliates in the Orange Book under the Hatch-Waxman Act with respect
to EGRIFTATM in HIV-associated lipodystrophy. In the event of a termination of our
agreement with EMD Serono, EMD Serono could assert that such patent would be infringed by our
continued sale of EGRIFTATM in the United States. Any such assertion would divert our
managements attention and could have a material adverse effect on our results of operations.
If any one of our commercial partners terminates their agreement with us or fails to effectively
commercialize EGRIFTATM, for any of the foregoing or other reasons, we may not be able
to replace the commercial partner and any of these events would have a material adverse effect on
our business, results of operations and our ability to achieve future profitability, and could
cause our stock price to decline.
We rely on third parties for the manufacture and supply of EGRIFTATM and tesamorelin and
such reliance may adversely affect us if the third parties are unable or unwilling to fulfill their
obligations.
The manufacture of pharmaceutical products requires significant expertise and capital investment,
including the development of advanced manufacturing techniques and process
- 23 -
controls. We do not own or operate manufacturing facilities for the production of tesamorelin or
any of our other product candidates, nor do we have plans to develop our own manufacturing
operations in the foreseeable future. We currently rely on third parties to manufacture and supply
all of our required raw materials, drug substance and drug product for our preclinical research,
clinical trials and commercial sales. For tesamorelin for clinical studies and EGRIFTATM
for commercial sales, we are currently using, and relying on, single suppliers and single
manufacturers for starting materials and the final drug substance. Although potential alternative
suppliers and manufacturers have been identified, we have not qualified these vendors to date and
no assurance can be given that such suppliers will be qualified in the future or receive necessary
regulatory approval.
Our reliance on third-party manufacturers exposes us to a number of risks. We may be subject to
delays in or suspension of the manufacturing of EGRIFTATM and tesamorelin if a
third-party manufacturer:
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becomes unavailable to us for any reason, including as a result of the
failure to comply with good manufacturing practices, or GMP, regulations; |
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experiences manufacturing problems or other operational failures, such
as equipment failures or unplanned facility shutdowns required to comply with GMP
or damage from any event, including fire, flood, earthquake, business
restructuring or insolvency; or |
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fails to perform its contractual obligations under our agreement, such
as failing to deliver the quantities requested on a timely basis. |
Any delay in or suspension of the supply of EGRIFTATM could delay or prevent the sale of
EGRIFTATM and, accordingly, adversely affect our revenues and results of operations. In
addition, any manufacturing delay or delay in delivering EGRIFTATM may result in our
being in default under our collaboration agreements. If the damage to a suppliers manufacturer
facility is extensive, or, for any reason, it does not operate in compliance with GMP or the
third-party manufacturer is unable or refuses to perform its obligations under our agreement, we
would need to find an alternative third-party manufacturer. The selection of a replacement
third-party manufacturer would be time-consuming and costly since we would need to validate the
manufacturing facility of such new third-party manufacturer. The validation process would include
an assessment of the capacity of such third-party manufacturer to produce the quantities that we
may request from time to time, the manufacturing process and its compliance with GMP. In addition,
the third-party manufacturer would have to familiarize itself with our technology. Any delay in
finding an alternative third-party manufacturer of tesamorelin and EGRIFTATM could
result in a shortage of such analogue or product, which could materially adversely affect our
business and results of operations.
Even though we have received regulatory approval for EGRIFTATM in the United States, we
still may not be able to successfully commercialize it if we do not gain market acceptance and the
revenue that we generate from its sales, if any, may be limited.
The commercial success of EGRIFTATM or any future products for which we obtain
marketing approval from the FDA or other regulatory authorities, will depend upon the acceptance
of such product by the medical community, including physicians, patients and health care payors.
The degree of market acceptance of any of our products will depend on a number of factors,
including:
- 24 -
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acceptance of the product by physicians and patients as safe and effective
treatments and addressing a significant unmet medical need; |
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product price; |
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the effectiveness of our sales and marketing efforts (or those of our
commercial partners); |
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storage requirements and ease of administration; |
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dosing regimen; |
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safety and efficacy; |
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prevalence and severity of side effects; |
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competitive products; |
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the ability to obtain and maintain sufficient third-party coverage or
reimbursement from government health care programs, including Medicare and
Medicaid, private health insurers and other third-party payors; and |
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the willingness and ability of patients to pay out-of-pocket in the
absence of third-party coverage. |
If EGRIFTATM does not achieve an adequate level of acceptance by physicians, health care
payors and patients, we may not generate sufficient revenue from this product, and we may not be
able to achieve profitability. Our efforts, and the efforts of our commercial partners, to educate
the medical community and third-party payors on the benefits of tesamorelin may require significant
resources and may never be successful.
We have no internal sales, marketing or distribution capabilities so we must rely on strategic
alliance agreements with third parties for the sale and marketing of EGRIFTATM or any
future products.
We currently have no internal sales, marketing or distribution capabilities and we rely on our
commercial partners to market and sell EGRIFTATM in their respective territories. Our
agreements with our commercial partners contain termination provisions which, if exercised, could
delay or suspend the commercialization of EGRIFTATM or any future products.
In the event of any such termination, in order to continue commercialization, we would be required
to build our own sales force or enter into agreements with third parties to provide such
capabilities. We currently have limited marketing capabilities and we have limited experience in
developing, training or managing a sales force. The development of a sales force would be costly
and would be time-consuming given the limited experience we have in this area. To the extent we
develop a sales force, we could be competing against companies that have more experience in
managing a sales force than we have and that have access to more funds than we with which to manage
a sales force. Consequently, there can be no assurance that a sales force which we develop would be
efficient and would maximize the revenues derived from the sale of EGRIFTATM or any
future products.
- 25 -
We are substantially dependent on revenues from EGRIFTATM.
Our current and future revenues depend substantially upon sales of EGRIFTATM by our
commercial partners, EMD Serono, Sanofi and Ferrer. Any negative developments relating to this
product, such as safety or efficacy issues, the introduction or greater acceptance of competing
products, including those marketed and sold by our commercial partners, or adverse regulatory or
legislative developments, would have a material adverse effect on our business, prospects and
results of operations. Although we continue to develop additional product candidates for
commercialization, we expect to be substantially dependent on sales from EGRIFTATM for
the foreseeable future. A decline in sales from this product would adversely affect our business.
Our levels of revenues are highly dependent on obtaining patient reimbursement for
EGRIFTATM.
Market acceptance and sales of EGRIFTATM will substantially depend on the availability
of reimbursement from third party payors such as governmental authorities, including U.S. Medicare
and Medicaid, managed care providers, and private insurance plans and may be affected by healthcare
reform measures in the United States and elsewhere. Government authorities and third-party payors,
such as private health insurers and health maintenance organizations, decide which medications they
will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry
and elsewhere is cost containment. Government authorities and these third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular
medications. Increasingly, third-party payors have been challenging the prices charged for
products.
Under our agreements with our commercial partners, they are responsible for seeking reimbursement
of EGRIFTATM in their respective territories and as a result we have no control over
whether or what level of reimbursement is achieved.
We cannot be sure that reimbursement by insurers, government or other third parties will be
available for EGRIFTATM and, if reimbursement is available, the level of reimbursement
provided to patients. Reimbursement may impact the demand for, or the price of,
EGRIFTATM and our future products for which we obtain marketing approval. If
reimbursement is not available or is available only in limited amount, our commercial partners may
not be able to successfully commercialize EGRIFTATM or our future products and it will
have a material adverse effect on our revenues and royalties, business and prospects.
A variety of risks associated with our international business relationships could materially
adversely affect our business.
International business relationships in the United States, Europe, Latin America, Africa, the
Middle East and elsewhere subject us to additional risks, including:
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differing regulatory requirements for drug approvals in foreign countries; |
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potentially reduced protection for intellectual property rights; |
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potential third-party patent rights in foreign countries;
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the potential for so-called parallel importing, which is what happens when a local
seller, faced with high or higher local prices, opts to import goods from a foreign
market, with low or lower prices, rather than buying them locally; |
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unexpected changes in tariffs, trade barriers and regulatory requirements; |
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economic weakness, including inflation, or political instability,
particularly in foreign economies and markets; |
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compliance with tax, employment, immigration and labor laws for
employees traveling abroad; |
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foreign taxes; |
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foreign exchange contracts and foreign currency fluctuations, which
could result in increased operating expenses and reduced revenue, and other
obligations incident to doing business in another country; |
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workforce uncertainty in countries where labor unrest is more common
than in the United States and Canada; |
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production shortages resulting from any events affecting raw material
supply or manufacturing capabilities abroad; and |
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business interruptions resulting from geo-political actions, including
war and terrorism, or natural disasters, including earthquakes, volcanoes,
typhoons, floods, hurricanes and fires. |
These and other risks of international business relationships may materially adversely affect our
business, prospects, results of operations and financial condition.
Governments outside the United States tend to impose strict price controls, which may adversely
affect our revenues, if any.
In several countries, including countries which are in Europe, Latin America, Africa, and the
Middle East, the pricing of prescription drugs may be subject to governmental control. In these
countries, pricing negotiations with governmental authorities can take considerable time and delay
the marketing of a product. To obtain reimbursement or pricing approval in some countries, a
clinical trial that compares the cost-effectiveness of a product candidate to other available
therapies may be required. If reimbursement of our product is unavailable or limited in scope or
amount, or if pricing is set at unsatisfactory levels, our commercial partners may not be willing
to devote resources to market and commercialize EGRIFTATM or may decide to cease
marketing such product. In such case, our business, prospects and results of operations could be
materially adversely affected.
We face competition and the development of new products by other companies could materially
adversely affect our business and products.
The biopharmaceutical and pharmaceutical industries are highly competitive and we must compete with
pharmaceutical companies, biotechnology companies, academic and research institutions as well as
governmental agencies for the development and commercialization of
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products, most of which have substantially greater financial, technical and personnel resources
than us. Although we believe that we have no direct competitors for the reduction of excess
abdominal fat in HIV-infected patients with lipodystrophy, we could face indirect competition from
other companies developing and/or commercializing metabolic products and/or other products that
reduce or eliminate the occurrence of lipodystrophy.
In the other clinical programs that we are currently evaluating for development, there may exist
companies that are at a more advanced stage of developing a product to treat the diseases for which
we are evaluating clinical programs. Some of these competitors could have access to capital
resources, research and development personnel and facilities that are superior to ours. In
addition, some of these competitors could be more experienced than we are in the development and
commercialization of medical products and already have a sales force in place to launch new
products. Consequently, they may be able to develop alternative forms of medical treatment which
could compete with our products and which could be commercialized more rapidly and effectively than
our products.
If we fail to comply with government regulations regarding the import and export of products and
raw materials, we could be subject to fines, sanctions and penalties that could adversely affect
our ability to operate our business.
We import and export products and raw materials from and to several jurisdictions around the
world. This process requires us and our commercial partners to operate in a number of
jurisdictions with different customs and import/export regulations. The regulations of these
countries are subject to change from time to time and we cannot predict the nature, scope or
impact of these changes upon our operations. We and our commercial partners are subject to
periodic reviews and audits by U.S. and foreign authorities responsible for administering these
regulations. To the extent that we or our commercial partners are unable to successfully defend
against an audit or review, we may be required to pay assessments, penalties and increased duties,
which may, individually or in the aggregate, negatively impact our business, operating results and
financial condition.
Risks Related to the Regulatory Review Process
Even after regulatory approval has been obtained regulatory agencies may impose limitations on
the indicated uses for which our products may be marketed, subsequently withdraw approval or take
other actions against us that would be adverse to our business.
Even though we have obtained marketing approval of EGRIFTATM in the United States, the
FDA and regulatory agencies in other countries have the ability to limit the indicated use of a
product. Also, the manufacture, marketing and sale of our products will be subject to ongoing and
extensive governmental regulation in the country in which we intend to market our products. For
example, although we obtained marketing approval of EGRIFTATM for the reduction of
excess abdominal fat in HIV-infected patients with lipodystrophy in the United States, the
marketing of EGRIFTATM will be subject to extensive regulatory requirements
administered by the FDA, such as adverse event reporting and compliance with marketing and
promotional requirements. The FDA has also requested that we comply with certain post-approval
requirements in connection with the approval of EGRIFTATM for the reduction of excess
abdominal fat in HIV-infected patients with lipodystrophy, namely, the development of a single
vial formulation of EGRIFTATM (the development of a new presentation of the same
formulation), a long-term observational
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safety study using EGRIFTATM; and a Phase 4 clinical trial. Although we have
received marketing approval from the FDA of tesamorelin for the reduction of excess abdominal fat
in HIV-infected patients with lipodystrophy, there can be no guarantee that regulatory agencies in
other countries will approve tesamorelin for this treatment in their respective countries.
Our third party manufacturing facilities for EGRIFTATM will also be subject to
continuous reviews and periodic inspections and approval of manufacturing modifications by
regulatory agencies, including the FDA. The facilities must comply with GMP regulations. The
failure to comply with FDA requirements can result in a series of administrative or judicial
sanctions or other setbacks, including:
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restrictions on the use of the product, manufacturers or manufacturing processes; |
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warning letters; |
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civil or criminal penalties; |
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fines; |
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injunctions; |
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product seizures or detentions; |
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import or export bans or restrictions; |
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product recalls and related publicity requirements; |
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suspension or withdrawal of regulatory approvals; |
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total or partial suspension of production; and |
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refusal to approve pending applications for marketing approval of new product candidates or
supplements to approved applications. |
Addressing any of the foregoing or any additional requirements of the FDA or other regulatory
authorities may require significant resources and could impair our ability to successfully
commercialize our product candidates.
To date, we do not have the required regulatory approvals to commercialize EGRIFTA
TM
outside of the United States and cannot guarantee that we will obtain such regulatory approvals or
that any of our product candidates will be approved for commercialization in any country, including
the United States.
The commercialization of EGRIFTATM outside of the United States and our future products
first requires the approval of the regulatory agencies in each of the jurisdictions where we intend
to sell such products. In order to obtain the required approvals, we must demonstrate, following
preclinical and clinical studies, the safety, efficacy and quality of a product.
The rules and regulations relating to the approval of a new drug are complex and stringent.
Although we have received marketing approval in the United States from the FDA for
EGRIFTATM, there can be no guarantee that regulatory agencies in other territories will
approve EGRIFTATM in their respective countries.
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All of our product candidates are subject to preclinical and clinical studies. If the results
of such studies are not positive, we may not be in a position to make any filing to obtain the
regulatory approval for the product candidate or, even where a product candidate has been filed for
approval, we may have to conduct additional clinical trials or testing on such product candidate in
an effort to obtain results that further support the safety and efficacy of such product candidate.
Such studies are often costly and may also delay a filing or, where additional studies or testing
are required after a filing has been made, the approval of a product candidate.
While an application for a new drug is under review by a regulatory agency, it is standard for such
regulatory agency to ask questions regarding the application that was submitted. If these questions
are not answered quickly and in a satisfactory manner, the marketing approval of the product
candidate subject to the review and its commercialization could be delayed or, if the questions are
not answered in a satisfactory manner, denied. If EGRIFTATM is not approved by the
appropriate regulatory agencies for commercialization outside of the United States, our capacity to
generate revenues in the long-term will be impaired and this will have an adverse effect on our
financial condition and our operating results.
Obtaining regulatory approval is subject to the discretion of regulatory agencies in each relevant
jurisdiction. Therefore, even if we obtain regulatory approval from one agency, or succeed in
filing the equivalent of a new drug application, or NDA, in other countries, or have obtained
positive results relating to the safety and efficacy of a product candidate, a regulatory agency
may not accept the filing or the results contained therein as being conclusive evidence of the
safety and efficacy of a product candidate in order to allow us to sell the product candidate in
its country. A regulatory agency may require that additional tests on the safety and efficacy of a
product candidate be conducted prior to granting approval of such product candidate. These
additional tests may delay the approval of such product candidate, can have a material adverse
effect on our financial condition and results of operations based on the type of additional tests
to be conducted and may not necessarily lead to the approval of the product candidate.
We have only obtained FDA approval for EGRIFTA
TM and we must complete several
preclinical studies and clinical trials for our other product candidates which may not yield
positive results and, consequently, could prevent us from obtaining regulatory approval.
If any of our preclinical studies or clinical trials fail to show positive efficacy data or result
in adverse patient reactions, we may be required to perform additional preclinical studies or
clinical trials, to extend the term of our studies and trials, to increase the number of patients
enrolled in a given trial or to undertake ancillary testing. Any of these events could cause an
increase in the cost of product development, delay filing of an application for marketing approval
or result in the termination of a study or trial and, accordingly, could cause us to cease the
development of a product candidate. In addition, the future growth of our business could be
negatively impacted since there can be no guarantee that we will be able to develop new compounds,
license or purchase compounds or product candidates that will result in marketed products.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain
marketing approval of and commercialize our product candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and
regulatory changes and proposed changes regarding the healthcare system that could prevent or delay
marketing approval for our product candidates, restrict or regulate post-approval
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activities and affect our ability to profitably sell EGRIFTATM or any of our other
product candidates for which we intend to seek marketing approval.
Legislative and regulatory proposals have been made to expand post-approval requirements and
restrict sales and promotional activities for pharmaceutical products. We are not sure whether
additional legislative changes will be enacted, or whether the FDA regulations, guidance or
interpretations will be changed, or what the impact of such changes on the marketing approvals of
our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the
FDAs approval process may significantly delay or prevent marketing approval, as well as subject us
to more stringent product labeling and post-marketing testing and other requirements.
In the United States, the Medicare Modernization Act, or MMA, changed the way Medicare covers and
pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by
the elderly and introduced a new reimbursement methodology based on average sales prices for drugs.
In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies
where they can limit the number of drugs that will be covered in any therapeutic class. As a result
of this legislation and the expansion of federal coverage of drug products, we expect that there
will be additional pressure to contain and reduce costs. These cost reduction initiatives and other
provisions of this legislation could decrease the coverage and sales price that we receive for
EGRIFTATM or any other approved products and could seriously harm our business. While
the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow
Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any
reduction in reimbursement that results from the MMA may result in a similar reduction in payments
from private payors.
More recently, in March 2010, U.S. President Obama signed into law the Health Care Reform Law, a
sweeping law intended to broaden access to health insurance, reduce or constrain the growth of
healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements
for healthcare and health insurance industries, impose new taxes and fees on the health industry
and impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law
revised the definition of average manufacturer price for reporting purposes, which could increase
the amount of Medicaid drug rebates to states. Further, beginning in 2011, the new law imposes a
significant annual fee on companies that manufacture or import branded prescription drug products.
We will not know the full effects of the Health Care Reform Law until applicable U.S. federal and
state agencies issue regulations or guidance under the new law. Although it is too early to
determine the effect of the Health Care Reform Law, the new law appears likely to continue to apply
the pressure on pharmaceutical pricing. Pressure on pharmaceutical pricing may adversely affect the
amount of our royalties in the United States.
Risks Related to Our Intellectual Property
Our failure to protect our intellectual property may have a material adverse effect on our
ability to develop and commercialize our products.
We will be able to protect our intellectual property rights from unauthorized use by third parties
only to the extent that our intellectual property rights are covered and protected by valid and
enforceable patents or are effectively maintained as trade secrets. We try to protect our
intellectual property position by, among other things, filing patent applications related to our
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proprietary technologies, inventions and improvements that are important to the development of
our business.
Because the patent position of pharmaceutical companies involves complex legal and factual
questions, the issuance, scope, validity, and enforceability of patents cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or circumvented. If our patents are
invalidated or found to be unenforceable, we would lose the ability to exclude others from making,
using or selling the inventions claimed. Moreover, an issued patent does not guarantee us the right
to use the patented technology or commercialize a product using that technology. Third parties may
have blocking patents that could be used to prevent us from developing our product candidates,
selling our products or commercializing our patented technology. Thus, patents that we own may not
allow us to exploit the rights conferred by our intellectual property protection.
Our pending patent applications may not be issued or granted as patents. Even if issued, they may
not be issued with claims of sufficient breadth to protect our product candidates and technologies
or may not provide us with a competitive advantage against competitors with similar products or
technologies. Furthermore, others may independently develop products or technologies similar to
those that we have developed or may reverse engineer or discover our trade secrets through proper
means. In addition, the laws of many countries do not protect intellectual property rights to the
same extent as the laws of Canada, the United States and the European Patent Convention, and those
countries may also lack adequate rules and procedures for defending intellectual property rights
effectively.
Although we have received patents from the United States Patent and Trademark Office, or USPTO, for
the treatment of HIV-related lipodystrophy with tesamorelin, there can be no guarantee that, in the
other countries where we filed patent applications for the treatment of HIV-related lipodystrophy,
we will receive a patent or obtain granted claims of similar breadth to those granted by the USPTO.
We also rely on trade secrets, know-how and technology, which are not protected by patents, to
maintain our competitive position. We try to protect this information by entering into
confidentiality agreements with parties who have access to such confidential information, such as
our current and prospective suppliers, distributors, manufacturers, commercial partners, employees
and consultants. Any of these parties may breach the agreements and disclose confidential
information to our competitors. It is possible that a competitor will make use of such information,
and that our competitive position could be disadvantaged.
Enforcing a claim that a third party infringes on, has illegally obtained or is using an
intellectual property right, including a trade secret or know-how, is expensive and time-consuming
and the outcome is unpredictable. In addition, enforcing such a claim could divert managements
attention from our business. If any intellectual property right were to be infringed, disclosed to
or independently developed by a competitor, our competitive position could be harmed. Any adverse
outcome of such litigation or settlement of such a dispute could subject us to significant
liabilities, could put one or more of our patents at risk of being invalidated or interpreted
narrowly, could put one or more of our patents at risk of not issuing, or could facilitate the
entry of generic products. Any such litigation
could also divert our research, technical and management personnel from their normal
responsibilities.
Our ability to defend ourselves against infringement by third parties of our intellectual property
in the United States with respect to tesamorelin for the treatment of HIV-related lipodystrophy
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depends, in part, on our commercial partners decision to bring an action against such third
party. Under the terms and conditions of our collaboration and licensing agreement with EMD Serono,
EMD Serono has the first right to bring an action against a third party for infringing our patent
rights with respect to tesamorelin for the treatment of HIV-related lipodystrophy. Any delay in
pursuing such action or in advising us that it does not intend to pursue the matter could decrease
sales, if any, of tesamorelin for the treatment of HIV-related lipodystrophy and adversely affect
our revenues.
Furthermore, because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. For example, confidential information
may be disclosed, inadvertently or as ordered by the court, in the form of documents or testimony
in connection with discovery requests, depositions or trial testimony. This disclosure would
provide our competitors with access to our proprietary information and may harm our competitive
position.
Our commercial success depends, in part, on our ability not to infringe on third party patents and
other intellectual property rights.
Our capacity to commercialize our product candidates, and more particularly tesamorelin, will
depend, in part, upon our ability to avoid infringing third party patents and other third party
intellectual property rights. The biopharmaceutical and pharmaceutical industries have produced a
multitude of patents and it is not always easy for participants, including us, to determine which
patents cover various types of products, processes of manufacture or methods of use. The scope and
breadth of patents is subject to interpretation by the courts and such interpretation may vary
depending on the jurisdiction where the claim is filed and the court where such claim is litigated.
The fact that we own patents for tesamorelin and for the treatment of HIV-related lipodystrophy
does not guarantee that we are not infringing one or more third-party patents and there can be no
guarantee that we will not infringe or violate third-party patents and other third-party
intellectual property rights in the United States or other jurisdictions.
Patent analysis for non-infringement is based in part on a review of publicly available databases.
Although we review from time to time certain databases to conduct patent searches, we do not have
access to all databases. It is also possible that we will not have reviewed some of the information
contained in the databases or we found it to be irrelevant at the time we conducted the searches.
In addition, because patents take years to issue, there may be currently pending applications that
have not yet been published or that we are unaware of, which may issue later as patents. As a
result, there can be no guarantee that we will not violate third-party patents.
Because of the difficulty in analyzing and interpreting patents, there can be no guarantee that a
third party will not assert that we infringe such third-partys patents or any of its other
intellectual property rights. Under such circumstances, there is no guarantee that we would not
become involved in litigation. Litigation with any third party, even if the allegations are without
merit, is expensive, time-consuming and would divert managements attention from the daily
execution of our business plan. Litigation implies that a portion of our financial assets would be
used to sustain the costs of litigation instead of being allocated to further the development of
our business.
If we are involved in patent infringement litigation, we would need to prevail in demonstrating
that our products do not infringe the asserted patent claims of the relevant patent, that the
patent claims are invalid or that the patent is unenforceable. If we are found to infringe a
third-party
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patent or other intellectual property right, we could be required to enter into royalty or
licensing agreements on terms and conditions that may not be favourable to us, and/or pay damages,
including up to treble damages in the United Sates (for example, if found liable of wilful
infringement) and/or cease the development and commercialization of our product candidates. Even if
we were able to obtain a license, the rights may be nonexclusive, which could result in our
competitors gaining access to the same intellectual property and to compete with us.
We have not been served with any notice alleging that we infringe a third-party patent, but there
may be issued patents that we are unaware of that our products may infringe, or patents that we
believe we do not infringe but ultimately could be found to infringe. We are aware of third-party
patents for the reduction of accumulation of fat tissue in HIV patients and, if a patent
infringement suit was brought against us, we believe that we should not be found to infringe any
valid claims of these patents. If we were to challenge the validity of a competitors issued United
States patent in a United States court, we would need to overcome a statutory presumption of
validity that attaches to every United States patent. This means that, in order to prevail, we
would have to present clear and convincing evidence as to the invalidity of the patents claims. We
cannot guarantee that a court would find in our favour on questions of infringement and validity.
Any finding that we infringe or violate a third-party patent or other intellectual property right
could materially adversely affect our business, financial condition and operating results.
Other Risks Related to Our Business
We have a history of net losses and we may never achieve high profitability.
We have been reporting losses since our inception (except for the financial years ended November
30, 2010, 2001 and 2000) and, as at November 30, 2010, we had an accumulated deficit of
$235,116,000. We do not expect to generate significant recurrent revenues sufficient to cover our
overall activities in the immediate future. As a result of the foregoing, we will need to generate
significant revenues to achieve profitability.
Our profitability will depend on, among other things, our commercial partners ability and
willingness to successfully commercialize EGRIFTATM and to obtain regulatory approval
for the use of tesamorelin in the reduction of excess abdominal fat in HIV-infected patients with
lipodystrophy in Europe, Latin America, Africa and the Middle East. However, there is no guarantee
that our commercial partners will succeed in commercializing EGRIFTATM or that our
product candidates will ever receive approval for commercialization in any jurisdiction and,
accordingly, we may never sustain profitability.
We rely on third-party service providers to conduct our preclinical studies and clinical trials and
the failure by any of these third parties to comply with their obligations may delay the studies
which could have an adverse effect on our development programs.
We have limited human resources to conduct preclinical studies and clinical trials and must rely on
third-party service providers to conduct our studies and trials and carry out certain data
gathering and analyses. If our third-party service providers become unavailable for any reason,
including as a result of the failure to comply with the rules and regulations governing the conduct
of preclinical studies and clinical trials,
operational failures such as equipment failures or unplanned facility shutdowns, or damage from any
event such as fire, flood, earthquake, business restructuring or insolvency or, if they fail to
perform their contractual obligations pursuant to the terms of our agreements with them, such as
failing to perform the testing,
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compute the data or complete the reports further to the testing, we may incur delays which may
be significant in connection with the planned timing of our trials and studies which could
adversely affect the timing of the development program of a product candidate or the filing of an
application for marketing approval in a jurisdiction where we rely on third-party service providers
to make such filing. In addition, where we rely on such third-party service provider to help in
answering any question raised by a regulatory agency during its review of one of our files, the
unavailability of such third-party service provider may adversely affect the timing of the review
of an application and, could ultimately delay the approval. If the damages to any of our
third-party service providers are material, or, for any reason, such providers do not operate in
compliance with Good Laboratory Practices, or GLP, or are unable or refuse to perform their
contractual obligations, we would need to find alternative third-party service providers.
If we needed to change or select new third-party service providers, the planned working schedule
related to preclinical studies and/or clinical trials could be delayed since the number of
competent and reliable third-party service providers of preclinical and clinical work in compliance
with GLP is limited. In addition, if we needed to change or select new third-party service
providers to carry out work in response to a regulatory agency review of one of our applications,
there may be delays in responding to such regulatory agency which, in turn, may lead to delays in
commercializing a product candidate.
Any selection of new third-party service providers to carry out work related to preclinical studies
and clinical trials would be time-consuming and would result in additional delays in receiving
data, analysis and reports from such third-party service providers which, in turn, would delay the
filing of any new drug application with regulatory agencies for the purposes of obtaining
regulatory approval to commercialize our product candidates. Furthermore, such delays could
increase our expenditures to develop a product candidate and materially adversely affect our
financial condition and operating results.
The conduct of clinical trials requires the enrolment of patients and difficulties in enrolling
patients could delay the conduct of our clinical trials or result in their non-completion.
The conduct of clinical trials requires the enrolment of patients. We may have difficulties
enrolling patients for the conduct of our future clinical trials as a result of design protocol,
the size of the patient population, the eligibility criteria to participate in the clinical trials,
the availability of competing therapies, the patient referral practices of physicians and the
availability of clinical trial sites. Difficulty in enrolling patients for our clinical trials
could result in the cancellation of clinical trials or delays in completing them. Once patients are
enrolled in a clinical trial, the occurrence of any adverse drug effects or side effects observed
during the trial could result in the clinical trial being cancelled. Any of these events would have
material adverse consequences on the timely development of our product candidates, the filing of an
NDA, or its equivalent, with regulatory agencies and the commercialization of such product
candidates.
We may require additional funding and may not be able to raise the capital necessary to fund all or
part of our capital requirements, including to continue and complete the research and development
of our product candidates and their commercialization.
We do not generate significant recurrent revenues and may need financing in order to fund all or
part of our capital requirements to sustain our growth, to continue research and development of new
product candidates, to conduct clinical programs, to develop our marketing and commercial
capabilities and to meet our compliance obligations with various rules and regulations to which
- 35 -
we are subject. In the past, we have been financed through public equity offerings in Canada
and private placements of our equity securities and we may need to seek additional equity offerings
to raise capital, the size of which cannot be predicted. However, the market conditions or our
business performance may prevent us from having access to the public market in the future at the
times or in the amounts necessary. Therefore, there can be no guarantee that we will be able to
continue to raise additional equity capital by way of public or private equity offerings in the
future. In such a case, we would have to use other means of financing, such as issuing debt
instruments or entering into private financing or credit agreements, the terms and conditions of
which may not be favorable to us. If adequate funding is not available to us, we may be required to
delay, reduce, or eliminate our research and development of new product candidates, our clinical
trials or our marketing and commercialization efforts to launch and distribute new products,
curtail significant portions of our product development programs that are designed to identify new
product candidates and sell or assign rights to our technologies, products or product candidates.
In addition, the issuance and sale of substantial amounts of equity, or other securities, or the
perception that such issuances and sales may occur could adversely affect the market price of our
common shares.
If product liability lawsuits are brought against us, they could result in costly and
time-consuming litigation and significant liabilities.
Despite all reasonable efforts to ensure the safety of EGRIFTATM and our other product
candidates, it is possible that we or our commercial partners will sell products which are
defective, to which patients react in an unexpected manner, or which are alleged to have side
effects. The manufacture and sale of such products may expose us to potential liability, and the
industries in which our products are likely to be sold have been subject to significant product
liability litigation. Any claims, with or without merit, could result in costly litigation, reduced
sales, significant liabilities and diversion of our managements time and attention and could have
a material adverse effect on our financial condition, business and results of operations.
If a product liability claim is brought against us, we may be required to pay legal and other
expenses to defend the claim and, if the claim is successful, damage awards may be substantial
and/or may not be covered, in whole or in part, by our insurance. We may not have sufficient
capital resources to pay a judgment, in which case our creditors could levy against our assets. We
may also be obligated to indemnify our commercial partners and make payments to other parties with
respect to product liability damages and claims. Defending any product liability claims, or
indemnifying others against those claims, could require us to expend significant financial and
managerial resources.
The development and commercialization of our drugs could expose us to liability claims which could
exceed our insurance coverage.
A risk of product liability claims is inherent in the development and commercialization of human
therapeutic products. Product liability insurance is very expensive and offers limited protection.
A product liability claim against us could potentially be greater than the available coverage and,
therefore, have a material adverse effect upon us and our financial condition. Furthermore, a
product liability claim could tarnish our reputation, whether or not such claims are covered by
insurance or are with or without merit.
We depend on our key personnel to research, develop and bring new products to the market and the
loss of key personnel or the inability to attract highly qualified individuals could have a
material adverse effect on our business and growth potential.
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The operation of our business requires qualified scientific and management personnel. The loss of
scientific personnel or members of management could have a material adverse effect on our business.
In addition, our growth is and will continue to be dependent, in part, on our ability to hire and
retain the employment of qualified personnel. There can be no guarantee that we will be able to
continue to retain our current employees or will be able to attract qualified personnel to achieve
our business plan.
We may be unable to identify and complete in-licensing or acquisitions. In-licensing or
acquisitions could divert managements attention and financial resources, may negatively affect our
operating results and could cause significant dilution to our shareholders.
In the future, we may engage in selective in-licensing or acquisitions of products or businesses
that we believe are complementary to our products or business. There is a risk that we will not be
able to identify suitable in-licensing or acquisition candidates available for sale at reasonable
prices, complete any in-licensing or acquisition, or successfully integrate any in-licensed or
acquired product or business into our operations. We are likely to face competition for
in-licensing or acquisition candidates from other parties including those that have substantially
greater available resources. In-licensing or acquisitions may involve a number of other risks,
including:
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diversion of managements attention; |
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disruption to our ongoing business; |
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failure to retain key acquired personnel; |
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difficulties in integrating acquired
operations, technologies, products or personnel; |
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unanticipated expenses, events or
circumstances; |
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assumption of disclosed and undisclosed liabilities; |
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inappropriate valuation of the acquired in-process research and development, or the
entire acquired business; and |
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difficulties in maintaining customer relations. |
If we do not successfully address these risks or any other problems encountered in connection with
an acquisition, the acquisition could have a material adverse effect on our business, results of
operations and financial condition. Inherited liabilities of or other issues with an acquired
business could have a material adverse effect on our performance or our business as a whole. In
addition, if we proceed with an acquisition, our available cash may be used to complete the
transaction, diminishing our liquidity and capital resources, or shares may be issued which could
cause significant dilution to our existing shareholders.
We may not achieve our publicly announced milestones on time.
From time to time, we publicly announce the timing of certain events to occur. These statements are
forward-looking and are based on the best estimate of management at the time relating to
- 37 -
the occurrence of such events. However, the actual timing of such events may differ from what has
been publicly disclosed. Events such as completion of a clinical program, discovery of a new
product candidate, filing of an application to obtain regulatory approval, beginning of
commercialization of our products or announcement of additional clinical programs for a product
candidate may vary from what is publicly disclosed. These variations may occur as a result of a
series of events, including the nature of the results obtained during a clinical trial or during a
research phase, problems with a supplier or a commercial partner or any other event having the
effect of delaying the publicly announced timeline. Our policy on disclosure of forward-looking
information consists of not updating it if the publicly disclosed timeline varies, except as may be
required by law. Any variation in the timing of certain events having the effect of postponing such
events could have an adverse material effect on our business plan, financial condition or operating
results.
The outcome of scientific research is uncertain and our failure to discover new compounds could
slow down the growth of our portfolio of products.
We conduct research activities in order to increase our portfolio of product candidates. The
outcome of scientific research is uncertain and may prove unsuccessful and, therefore, may not lead
to the discovery of new molecules and progression of existing compounds to an advanced development
stage. Our inability to develop new compounds or to further develop the existing ones could slow
down the growth of our portfolio of products.
Risks Related to our Common Shares
Our share price has been volatile, and an investment in our common shares could suffer a
decline in value.
Since our initial public offering in Canada, our valuation and share price have had no meaningful
relationship to current or historical financial results, asset values, book value or many other
criteria based on conventional measures of the value of common shares. The market price of our
common shares will fluctuate due to various factors including the risk factors described herein and
other facts beyond our control.
In the past, when the market price of a stock has been volatile, shareholders have often instituted
securities class action litigation against that company. If any of our shareholders brought a
lawsuit against us, we could incur substantial costs defending the lawsuit. The lawsuit could also
divert the time and attention of our management.
Our quarterly operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other
operating results will be affected by numerous factors, including:
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variations in the level of revenues and royalties received related to our
development programs; |
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variations in the level of expenses related to our development programs; |
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addition or termination of clinical trials; |
- 38 -
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any intellectual property infringement lawsuit in which we may become involved; |
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regulatory developments affecting our product candidates; |
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our execution of any collaborative, licensing or similar arrangements, and the
timing of payments we may make or receive under these arrangements; and |
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the achievement and timing of milestone payments under our existing strategic
partnership agreements. |
If our quarterly operating results fall below the expectations of investors or securities analysts,
the price of our common shares could decline substantially. Furthermore, any quarterly fluctuations
in our operating results may, in turn, cause the price of our stock to fluctuate substantially.
We do not intend to pay dividends on our common shares and, consequently, your ability to achieve a
return on your investment will depend on appreciation in the price of our common shares.
We have never declared or paid any cash dividend on our common shares and do not currently intend
to do so for the foreseeable future. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do not anticipate declaring or
paying any cash dividends for the foreseeable future. Therefore, the success of an investment in
our common shares will depend upon any future appreciation in their value. There is no guarantee
that our common shares will appreciate in value or even maintain the price at which our
shareholders have purchased their shares.
Our revenues and expenses may fluctuate significantly and any failure to meet financial
expectations may disappoint securities analysts or investors and result in a decline in the price
of our common shares.
Our revenues and expenses have fluctuated in the past and are likely to do so in the future. These
fluctuations could cause our share price to decline. Some of the factors that could cause revenues
and expenses to fluctuate include the following:
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the inability to complete product development in a timely manner that results in a
failure or delay in receiving the required regulatory approvals or allowances to
commercialize product candidates; |
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the timing of regulatory submissions and approvals; |
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the timing and willingness of any current or future collaborators to invest the
resources necessary to commercialize the product candidates; |
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the outcome of any litigation; |
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changes in foreign currency fluctuations; |
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the timing of achievement and the receipt of milestone payments from current or
future third parties; |
- 39 -
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failure to enter into new or the expiration or termination of current agreements
with third parties; and |
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failure to introduce the product candidates to the market in a manner that generates
anticipated revenues. |
We may be adversely affected by currency fluctuations.
A substantial portion of our revenue is earned in U.S. dollars, but a substantial portion of our
operating expenses are incurred in Canadian dollars. Fluctuations in the exchange rate between the
U.S. dollar and other currencies, such as the Canadian dollar, may have a material adverse effect
on our business, financial condition and operating results. We do not currently engage in
transactional hedging schemes but we do attempt to hedge or mitigate the risk of currency
fluctuations by actively monitoring and managing our foreign currency holdings relative to our
foreign currency expenses.
Our articles and certain Canadian laws could delay or deter a change of control.
On February 10, 2010, we entered into a shareholder rights plan agreement. In the event of certain
change of control transactions, the plan entitles a rights holder, other than the person or group
acquiring control, to subscribe to our common shares at a discount of 50 percent to the market
price at that time, subject to certain exceptions.
The Investment Canada Act (Canada) subjects an acquisition of control of a company by a
non-Canadian to government review if the value of the assets as calculated pursuant to the
legislation exceeds a threshold amount. A reviewable acquisition may not proceed unless the
relevant minister is satisfied that the investment is likely to be a net benefit to Canada.
Any of the foregoing could prevent or delay a change of control and may deprive or limit strategic
opportunities for our shareholders to sell their shares.
Further information on Theratechnologies
Further information on Theratechnologies, including the Companys Annual Information Form, is
available on the SEDAR site at www.sedar.com.
- 40 -
EX-4.4
Exhibit 4.4
NOTICE OF ANNUAL AND SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON
THURSDAY, MARCH 25, 2010
AND
MANAGEMENT PROXY CIRCULAR
FEBRUARY 23, 2010
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
To the shareholders of Theratechnologies Inc. (the Company):
NOTICE IS HEREBY GIVEN that an annual and special meeting of shareholders (the Meeting) of the
Company will be held at the Centre Mont-Royal, 2200 Mansfield, Salon International, Montreal,
Québec, on Thursday, March 25, 2010 at 10:00 a.m., local time, for the following purposes:
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(1) |
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to receive the consolidated financial statements for the fiscal year ended
November 30, 2009, as well as the auditors report thereon; |
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(2) |
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to elect directors for the ensuing year; |
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(3) |
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to appoint auditors for the ensuing year and authorize the directors to set
their compensation; |
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(4) |
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to consider, and if deemed advisable, to pass Resolution 2010-1 (the text of
which is attached as Appendix A to the accompanying Management Proxy Circular), with or
without amendments, approving the shareholder rights plan, the whole as described in
the accompanying Management Proxy Circular; and |
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(5) |
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to transact such other business as may properly come before the Meeting. |
DATED at Montreal, Québec, Canada, February 23, 2010.
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BY ORDER OF THE BOARD OF DIRECTORS |
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Jocelyn Lafond |
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Corporate Secretary |
MANAGEMENT PROXY CIRCULAR
The information contained in this management proxy circular (the Circular) is given as at
February 23, 2010, except as otherwise noted. All dollar amounts set forth herein are expressed in
Canadian dollars and the symbol $ refers to the Canadian dollar, unless otherwise indicated.
TABLE OF CONTENTS
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ITEM I. INFORMATION RELATING TO THE ANNUAL AND SPECIAL MEETING |
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1 |
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1. Voting |
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1 |
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A. By Proxy |
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1 |
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B. In Person |
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2 |
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C. Voting Securities and Principal Holders |
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2 |
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2. Subjects To Be Treated at the Meeting |
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3 |
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A. Receipt of Financial Statements |
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3 |
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B. Election of Directors |
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3 |
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C. Appointment of Auditors |
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5 |
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D. Approval of Shareholder Rights Plan |
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6 |
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E. Other Matters to be Acted Upon |
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10 |
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ITEM II. COMPENSATION |
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11 |
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1. Executive Compensation |
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11 |
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A. Compensation Discussion & Analysis |
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11 |
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B. Summary Compensation Table |
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15 |
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C. Incentive Plan Awards |
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17 |
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D. Termination and Change of Control Provisions |
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19 |
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E. Performance Graph |
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24 |
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F. Other Information |
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25 |
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2. Director Compensation |
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26 |
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A. Determination of Director Compensation |
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26 |
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B. Director Compensation Table |
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27 |
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C. Incentive Plan Awards |
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28 |
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D. Other Information |
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31 |
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ITEM III. CORPORATE GOVERNANCE DISCLOSURE |
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32 |
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1. Board of Directors |
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32 |
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A. Independence |
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32 |
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B. Meetings of the Board |
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32 |
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C. Other Board Memberships |
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33 |
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2. Mandate of the Board of Directors |
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33 |
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3. Position Descriptions |
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33 |
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4. Orientation and Continuing Education |
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33 |
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5. Ethical Business Conduct |
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34 |
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6. Nomination of Directors |
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34 |
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7. Compensation |
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34 |
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A. Independence |
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34 |
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B. Meetings of the Compensation Committee |
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34 |
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8. Audit Committee |
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34 |
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A. Independence |
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34 |
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B. Meetings of the Audit Committee |
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35 |
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9. Other Committees |
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35 |
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A. Financing Committee |
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35 |
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B. Strategic Committee |
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35 |
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10. Assessment |
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36 |
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ITEM IV. OTHER INFORMATION |
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37 |
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1. Additional Documentation |
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37 |
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2. Approval By The Board Of Directors |
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37 |
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APPENDIX A Resolution 2010-1 Shareholder Rights Plan |
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APPENDIX B Compensation Committee Charter |
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APPENDIX C Mandate of the Board of Directors |
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APPENDIX D Director Orientation and Continuing Education Policy |
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APPENDIX E Nominating and Corporate Governance Committee Charter |
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ITEM I. INFORMATION RELATING TO THE ANNUAL AND SPECIAL MEETING
1. Voting
You may vote your shares either through a proxy or in person at the annual and special meeting of
shareholders of the Company (the Meeting).
A. By Proxy
Solicitation of Proxies
This Circular is furnished in connection with the solicitation by the management of
Theratechnologies Inc. (the Company or Theratechnologies) of proxies to be used at the Meeting
of the Company to be held on Thursday, March 25, 2010, at the time, place and for the purposes set
forth in the attached Notice of Annual and Special Meeting of Shareholders (the Notice of
Meeting) and at any continuation of the Meeting after adjournment thereof.
The solicitation of proxies is being primarily made by mail but proxies may also be solicited by
telephone, telecopier or other personal contact by officers or other employees of the Company.
The entire cost of the solicitation will be borne by the Company.
Terms of Proxy Grant
By completing the enclosed form of proxy, or the one provided by your intermediary, you appoint the
persons proposed in that form to represent your interests and vote your shares on your behalf at
the Meeting. The persons named in the enclosed form of proxy are directors or officers of the
Company. However, you have the right to appoint a person or company other than the ones designated
in the form of proxy to represent you at the Meeting. To do this, you must insert such persons
name in the blank space provided in the form of proxy enclosed hereto or complete another form of
proxy. It is not necessary to be a shareholder of the Company in order to act as a proxy.
If you hold your shares through an intermediary (a stockbroker, a bank, a trust, a trustee, etc.),
you are not a registered shareholder in the registry of shareholders of the Company held by
Computershare Trust Company of Canada (Computershare). Therefore, you cannot vote your shares
directly at the Meeting. If this is your situation, you will receive from your intermediary
explanation as to how to appoint proxies and have them vote your shares. To ensure that your
instructions are respected, you must deliver them to your intermediary within the prescribed
deadline. For any questions, please contact your intermediary directly.
Proxy Voting
The persons named or appointed in the form of proxy will, on a show of hands or any ballot that may
be called, vote (or withhold from voting) your shares in respect of which they are appointed as
proxies in accordance with the instructions given in the form of proxy. In the absence of
instructions, the voting rights attached to the shares referred to in your form of proxy will be
exercised FOR the matters mentioned in the attached Notice of Meeting.
Furthermore, the enclosed form of proxy confers upon the proxy holder a discretionary power with
respect to amendments or variations to matters identified in the Notice of Meeting and with respect
to all other matters which may properly come before the Meeting, or any continuation after
adjournment thereof.
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Information Relating to the Meeting
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Page 1 |
Management Proxy Circular
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Theratechnologies Inc. |
However, to our knowledge, all matters to be brought before the Meeting are mentioned in
appropriate fashion in the Notice of Meeting.
Delivery of Form of Proxy and Deadlines
If you hold your shares personally and are a registered shareholder in the registry of shareholders
of the Company, please send the completed form of proxy to the Secretary of the Company, c/o
Computershare Trust Company of Canada, 1100 University Street, 12th Floor, Montreal,
Québec H3B 2G7, prior to 5:00 p.m. (Eastern time) on March 23, 2010 (unless you attend the Meeting
in person). All shares represented by proper proxies accompanied by duly completed declarations
received by Computershare at the latest on such date and prior to such time will be voted in
accordance with your instructions as specified in the proxy form on any ballot that may be called
at the Meeting.
If you hold your shares through an intermediary, please proceed as indicated in the documentation
sent by your intermediary and within the deadlines specified therein. For any questions, please
contact your intermediary directly.
Revocation of a Proxy
You may, at any time, including any continuation of the Meeting after adjournment thereof, revoke a
proxy for any business with respect to which said proxy confers a vote that has not already been
cast.
If you hold your shares personally and are a registered shareholder in the registry of shareholders
of the Company, please send a written notice to revoke a proxy bearing your signature or that of
your proxy (or a representative of your proxy if your proxy is a company) to the Secretary of the
Company, c/o Computershare Trust Company of Canada, 1100 University Street, 12th Floor,
Montreal, Québec H3B 2G7, prior to 5:00 p.m. (Eastern time) on March 23, 2010. You may also revoke
a proxy in person at the Meeting by making a request to that effect to the Secretary of the
Company.
If you hold your shares through an intermediary, please proceed as indicated in the documentation
sent by your intermediary and within the deadlines specified therein. For any questions, please
contact your intermediary directly.
B. In Person
If you hold your shares personally and are a registered shareholder in the registry of shareholders
of the Company, you may present yourself on the date, at the time and place set forth in the Notice
of Meeting and register with the representatives of Computershare who will be at the Meeting. You
should then follow voting instructions given by the Chairman of the Meeting.
If you hold your shares through an intermediary and you wish to vote your shares in person at the
Meeting, please proceed as indicated in the documentation sent by your intermediary. For any
questions, please contact your intermediary directly.
C. Voting Securities and Principal Holders
As at February 22, 2010, there were 60,449,891 common shares (the Common Shares) of the Company
issued and outstanding. The Common Shares are the only securities with respect to which a voting
right may be exercised at the Meeting. Each Common Share entitles its holder to one vote with
respect to the matters voted on at the Meeting.
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Information Relating to the Meeting
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Page 2 |
Management Proxy Circular
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Theratechnologies Inc. |
Holders of Common Shares whose names are registered on the lists of shareholders of the
Company as at 5:00 p.m. (Eastern time) on February 22, 2010, being the date fixed by the Company
for determination of the registered holders of Common Shares who are entitled to receive notice of
the Meeting (the Record Date), will be entitled to exercise their voting rights attached to the
Common Shares in respect of which they are so registered at the Meeting, or any continuation after
adjournment thereof, if present or represented by proxy thereat. However, even if you have acquired
Common Shares after the Record Date, you will be entitled to vote at the Meeting if, at least
twenty-four (24) hours prior to the Meeting, you produce certificates for such Common Shares
properly endorsed by the seller, or if you otherwise establish that you own such Common Shares and
have requested that your name be included on the list of shareholders entitled to receive the
Notice of Meeting.
To our knowledge, no person beneficially owns, or controls or directs control, directly or
indirectly, over more than ten percent (10%) of the outstanding Common Shares of the Company.
2. Subjects To Be Treated at the Meeting
Please find below a description of the items listed in the Notice of Meeting.
A. Receipt of Financial Statements
The consolidated financial statements for the fiscal year ended November 30, 2009 together with the
auditors report thereon will be presented at the Meeting. The financial statements are included in
the Companys 2009 annual report, which has been mailed to you if you requested it, along with this
Circular. The financial statements are also available on SEDAR at www.sedar.com. No vote is
required on this matter.
B. Election of Directors
The shareholders at the Meeting will appoint the directors of the Company for the coming year.
Composition of the Board of Directors
The articles of the Company provide that the board of directors of the Company (the Board of
Directors) must consist of a minimum of three (3) and a maximum of twenty (20) directors. The
Board of Directors has established that a number of nine (9) directors was well adapted to its size
and activities.
Nominees
All of the nominees for the director positions of the Company are elected for a one year term
ending at the next annual meeting of shareholders or when his successor is elected, unless he
resigns or the position becomes vacant as a result of death, dismissal or otherwise, prior to the
said meeting. We do not contemplate that any of the nominees will be unable to fulfill his mandate
as director. Unless instructions are given to abstain from voting with regard to the election of
directors, the persons whose names appear on the enclosed form of proxy will vote FOR the election
of the nominees whose names are set out in the table below.
At the Meeting, shareholders are asked to vote on a slate of directors. However, at a meeting of
the Nominating and Corporate Governance Committee held in December 2009, the members of this
committee agreed to review the election mode of directors for the next annual meeting of the
Company. The members of the committee will examine the opportunity to move from a bundled slate of
directors to an election of directors on an individual basis.
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Information Relating to the Meeting
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Page 3 |
Management Proxy Circular
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Theratechnologies Inc. |
The following table states the names of all persons proposed for election as directors, their
province or state and country of residence, their principal occupation, the position held in the
Company (if any), the year in which they first became directors of the Company and the number of
Common Shares they own, directly or indirectly, or over which they exercise control or direction.
To obtain additional information regarding the biographical notes of the nominees, shareholders can
consult item 4.1 of the Companys 2009 annual information form dated February 23, 2010 available on
SEDAR at www.sedar.com.
The information relating to the number of Common Shares held by the nominees in the table below and
under Cease Trade Orders, Bankruptcies, Penalties or Sanctions is based on the statements made by
the nominees.
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Number of Common |
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Shares of the Company |
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Owned, Directly or |
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Indirectly, |
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or Over Which |
Name, Province or State |
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Director |
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Control or |
and Country of Residence |
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Principal Occupation |
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Since |
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Direction is Exercised |
Paul Pommier(1) (2) (3) (4) (5) |
|
Chairman of the Board of the |
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Québec, Canada |
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Company |
|
1997 |
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190,100 |
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Gilles Cloutier(3) (5)
North Carolina,
United States |
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Corporate Director |
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2003 |
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51,000 |
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A. Jean de Grandpré(2) (3) (4) (5)
Québec, Canada |
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Corporate Director |
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1993 |
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200,000 |
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Robert G. Goyer(3) |
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Emeritus Professor |
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Québec, Canada |
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Faculty of Pharmacy |
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Université de Montreal |
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2005 |
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10,000 |
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Gérald A. Lacoste(1) (3) (5)
Québec, Canada |
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Corporate Director |
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2006 |
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11,000 |
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Bernard Reculeau(2)
Paris, France |
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Corporate Director |
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2005 |
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18,100 |
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Yves Rosconi(4) |
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President and Chief Executive |
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Québec, Canada |
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Officer of the Company |
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2004 |
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67,093 |
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Jean-Denis Talon(1) (2) |
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Chairman of the Board |
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Québec, Canada |
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AXA Canada |
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(Insurance Company) |
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2001 |
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60,000 |
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Luc Tanguay(4) |
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Senior Executive Vice President |
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Québec, Canada |
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and Chief Financial Officer of |
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the Company |
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1993 |
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83,000 |
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(1) |
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Member of the Audit Committee |
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(2) |
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Member of the Compensation Committee |
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(3) |
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Member of the Nominating and Corporate Governance Committee |
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(4) |
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Member of the Financing Committee |
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(5) |
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Member of the Strategic Review Committee |
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Information Relating to the Meeting
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Page 4 |
Management Proxy Circular
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Theratechnologies Inc. |
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
Except as described below, to the knowledge of management of the Company, no nominee (a) is, as at
the date of the Circular, or has been within the ten (10) years before the date of the Circular, a
director or executive officer of any company (including the Company) that, while that person was
acting in that capacity, (i) was the subject of a cease trade or similar order or an order that
denied the relevant company access to any exemption under securities legislation, for a period of
more than thirty consecutive days; (ii) was subject to an event that resulted, after the director
or executive officer ceased to be a director or executive officer, in the company being the subject
of a cease trade or similar order or an order that denied the relevant company access to any
exemption under securities legislation, for a period of more than thirty consecutive days; or (iii)
within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal
under any legislation relating to bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or
trustee appointed to hold its assets; or (b) has, within the ten (10) years before the date of the
Circular, become bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency, or become subject to or instituted any proceedings, arrangement or compromise with
creditors, or had a receiver, receiver manager or trustee appointed to hold his assets.
Paul Pommier was a member of the board of directors of Royal Aviation Inc. from September 1996
until it was acquired by Canada 3000 Inc. in March 2001. Subsequently, at the end of 2001, Canada
3000 Inc. and its subsidiaries, including Royal Aviation Inc., made assignments in bankruptcy under
Section 49 of the Bankruptcy and Insolvency Act (R.S. 1985, c. B-3) (the Bankruptcy Act).
Yves Rosconi was a member of the board of directors of Mistral Pharma Inc. from September 2007
until May 2008. On June 13, 2008, Mistral Pharma Inc. filed a notice of intention to make a
proposal to its creditors under the Bankruptcy Act and, on August 19, 2008, Mistral Pharma Inc.
filed a proposal under the Bankruptcy Act.
Luc Tanguay is currently a member of the board of directors of Ambrilia Biopharma Inc. (hereafter
Ambrilia) and has been a member since August 22, 2006. On July 31, 2009, Ambrilia obtained court
protection from its creditors under the Companies Creditors Arrangement Act (Canada). The purpose
of the order issued by the court granting Ambrilia protection from its creditors is to provide
Ambrilia and its subsidiaries the opportunity to restructure its affairs. Ambrilia is still under
court protection. In addition, on July 31, 2009, the Toronto Stock Exchange halted the trading of
Ambrilias shares pending its review of Ambrilias meeting the requirements for continuous listing.
On August 5, 2009, Ambrilia announced that its shares would resume trading.
C. Appointment of Auditors
The Companys auditors for the current fiscal year must be appointed at the Meeting. We propose the
appointment of KPMG LLP, chartered accountants from Montréal, who have been the Companys auditors
since October 19, 1993. They will hold office until the next annual meeting of shareholders or
until their successors are appointed.
The table below sets forth the fees paid to the auditors of the Company for the financial years
ended November 30, 2009 and November 30, 2008.
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Financial Year Ended |
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Financial Year Ended |
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November 30, 2009 |
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November 30, 2008 |
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Audit Fees |
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$ |
80,000 |
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$ |
77,000 |
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Audit-Related Fees (1) |
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$ |
17,500 |
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$ |
71,300 |
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Tax Fees (2) |
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$ |
39,626 |
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40,064 |
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All Other Fees |
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(1) |
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Audit-related fees relate principally to services rendered in connection with the Companys
quarterly financial statements. For the financial year ended November 30, 2008, audit-related
fees paid to KPMG also included fees related to services rendered in connection with the
Companys public offering. |
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Tax fees relate to services rendered in connection with the preparation of corporate tax
returns and general tax advice. |
Unless instructions are given to abstain from voting with regard to the appointment of
auditors, the persons whose names appear on the enclosed form of proxy will vote FOR the
appointment of KPMG LLP, chartered accountants, as auditors of the Company, and authorize that
compensation for their services be determined by the Board of Directors.
D. Approval of Shareholder Rights Plan
On February 10, 2010, the Board of Directors implemented a shareholder rights plan (the Rights
Plan), the terms and conditions of which are set out in a shareholder rights plan agreement (the
Rights Agreement) dated February 10, 2010 with Computershare Trust Services of Canada, as rights
agent. The Rights Plan is currently effective but is subject to approval by a majority of the votes
cast by shareholders, in person or by proxy, at the Meeting. If shareholders of the Company do not
approve the Rights Plan, it will cease to be effective and will terminate.
Purpose of the Rights Plan
The purpose of the Rights Plan is to ensure equal treatment of shareholders and to give adequate
time for shareholders to properly assess the merits of a bid without undue pressure, and to allow
competing bids to emerge. The Rights Plan is designed to give the Board of Directors time to
consider alternatives, allowing shareholders to receive full and fair value for their shares. The
Rights Plan was not adopted by the Board of Directors in response to any acquisition proposal and
is not designed to secure the continuance in office of the current management or the directors of
the Company. The adoption of the Rights Plan does not in any way lessen the duties of the directors
to fully and fairly examine all bids which may be made to acquire the Common Shares of the Company
and to exercise such duties with a view to the best interest of the shareholders and the Company.
Before deciding to adopt the Rights Plan, the Board of Directors considered the current
shareholdings of the Company and the legislative framework in Canada governing takeover bids. To
our knowledge, there is currently no person who beneficially owns, or controls or directs control,
directly or indirectly, over more than ten percent (10%) of the outstanding Common Shares of the
Company. Therefore, a person could acquire a de facto control of the Company through the purchase
of a number of Common Shares that would represent a percentage of Common Shares below 50% by
entering into private acquisition agreements without having to make an offer to all of the
shareholders.
Under provincial securities legislation, a takeover bid generally means an offer to acquire voting
or equity voting shares of a corporation that, together with shares already owned by the bidder and
certain parties related thereto, amount to 20% or more of the outstanding shares of that class.
The existing legislative framework for takeover bids in Canada presents the following concerns for
shareholders:
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1. |
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Time |
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Current legislation permits a takeover bid to expire 35 days after it is initiated. The Board
of Directors is of the view that this is not sufficient time to permit shareholders to
adequately consider a takeover bid and make a reasoned and unhurried decision. |
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Pressure to Tender |
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A shareholder may feel compelled to tender his Common Shares pursuant to a takeover bid which
he considers to be inadequate, out of a concern that in failing to do so, the shareholder may
be left with illiquid or minority discounted Common Shares. The Rights Plan provides
shareholders with a mechanism which is intended to ensure that they can separate the decision
to tender, based on the merits of a bid, from the approval or disapproval of a particular
takeover bid. |
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Unequal Treatment |
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Shareholders may not be treated equally if, as current securities legislation provides, an
important number of Common Shares is acquired pursuant to a private agreement in which a
small group of shareholders or a shareholder disposes of its Common Shares at a premium to
market price, which premium is not shared with the other shareholders of the Company. In
addition, a person may gradually accumulate Common Shares through stock exchange acquisitions
which results in an acquisition of control of the Company, without payment of fair value for
control or a fair sharing of a control premium amongst all shareholders. The Rights Plan
addresses these concerns by applying to all acquisitions of 20% or more of the Common Shares
of the Company, ensuring that shareholders receive equal treatment. |
The issue of rights (the Rights) will not in any way adversely alter the financial condition of
the Company and will not change the way in which shareholders trade their Common Shares. However,
by permitting holders of Rights other than an Acquiring Person (as defined below) to acquire
additional Common Shares of the Company at a discount to market value, the Rights may cause
substantial dilution to a person or group that acquires 20% or more of the outstanding Common
Shares other than by way of a Permitted Bid (as defined below). A potential bidder can avoid the
dilutive features of the Rights Plan by making a bid that conforms to the requirements of a
Permitted Bid.
The Company has reviewed the Rights Plan for conformity with current practices of Canadian
companies with respect to shareholder protection rights plans. We believe that the Rights Plan
preserves the fair treatment of shareholders, is consistent with best Canadian corporate practices
and addresses institutional investor guidelines.
Terms of the Rights Plan
The following is a summary of the principal terms of the Rights Agreement and is provided subject
to the terms and conditions thereof. A complete copy of the Rights Agreement has been filed and is
available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.
Issue of Rights
In order to implement the Rights Plan, the Board of Directors authorized the Company to issue one
right in respect of each Common Share outstanding as of 6:00 p.m. (Montreal time) on February 9,
2010 (the Effective Date). One Right will also be issued and attached to each subsequently issued
Common Share.
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Rights-Exercise Privilege
The Rights will be separate from the Common Shares to which they are attached and will become
exercisable at the time (the Separation Time) that is ten (10) business days after the earlier
of: (i) the first date of public announcement that an Acquiring Person (as defined below) has
become such; (ii) the date of commencement of, or first public announcement in respect of, a
takeover bid which will permit an offeror to hold 20% or more of the Common Shares, other than by
an acquisition pursuant to a takeover bid permitted by the Rights Plan (a Permitted Bid as
defined below); (iii) the date upon which a Permitted Bid ceases to be a Permitted Bid; or (iv)
such other date as may be determined in good faith by the Board of Directors.
The acquisition permitting a person (an Acquiring Person), including others acting jointly or in
concert with such person, to hold 20% or more of the outstanding Common Shares, other than by way
of a Permitted Bid, is referred to as a Flip-in Event. Any Rights held by an Acquiring Person on
or after the earlier of the Separation Time or the first date of a public announcement (the Common
Share Acquisition Date) by the Company or an Acquiring Person that an Acquiring Person has become
such will become null and void upon the occurrence of a Flip-in Event. Ten (10) trading days after
the occurrence of the Common Share Acquisition Date, each Right (other than those held by the
Acquiring Person) will permit the holder to purchase for the exercise price that number of Common
Shares determined as follows: a value of twice the exercise price divided by the average weighted
market price for the last 20 trading days preceding the Common Share Acquisition Date. The exercise
price is currently $25 per Right, subject to adjustment provisions described in the Rights Plan.
Upon the occurrence of a Flip-in Event and the separation of the Rights from the Common Shares,
reported earnings per share on a fully diluted or non-diluted basis may be affected. Holders of
Rights who do not exercise their Rights upon the occurrence of a Flip-in Event may suffer
substantial dilution.
Lock-Up Agreements
A bidder may enter into lock-up agreements with the shareholders of the Company whereby such
shareholders agree to tender their Common Shares to the takeover bid (the Lock-up Bid) without a
Flip-in Event occurring. Any such agreement must permit or must have the effect to permit the
shareholder to withdraw the Common Shares to tender to another takeover bid or to support another
transaction that exceeds the value of the Lock-up Bid.
Certificates and Transferability
Prior to the Separation Time, the Rights will be evidenced by a legend imprinted on certificates
for Common Shares issued after the Effective Date. Rights are also attached to Common Shares
outstanding on the Effective Date, although share certificates will not bear such a legend. Prior
to the Separation Time, Rights will not be transferable separately from the Common Shares. From
and after the Separation Time, the Rights will be evidenced by Rights certificates, which will be
transferable and traded separately from the Common Shares.
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Permitted Bid Requirements
A Permitted Bid is a takeover bid that does not trigger the exercise of Rights. A Permitted
Bid is a bid that aims to acquire shares which, together with the other securities beneficially
owned by the bidder, represent not less than 20% of the outstanding Common Shares, which bid is
made by means of a takeover bid circular and satisfies the following requirements:
(i) |
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the bid must be made to all holders of Common Shares; |
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(ii) |
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the bid must include a condition without reservation providing that no share
tendered pursuant to the bid will be taken up prior to the expiry of a period of not less than
60 days and only if at such date more than 50% in aggregate of the outstanding shares held by
the shareholders other than the bidder, its associates and affiliates, and persons acting
jointly or in concert with such persons (the Independent Shareholders), have been tendered
pursuant to the bid and not withdrawn; |
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if more than 50% in aggregate of the shares held by Independent Shareholders are
tendered to the bid within the 60-day period, the bidder must make a public announcement of
that fact and the bid must remain open for deposits of shares for an additional ten (10)
business days from the date of such public announcement. |
Waiver and Redemptions
The Board of Directors acting in good faith may, prior to a Flip-in Event, waive the dilutive
effects of the Rights Plan in respect of a particular Flip-in Event that would result from a
takeover bid made by way of takeover bid circular to all holders of Common Shares, in which event
such waiver would be deemed also to be a waiver in respect of any other Flip-in Event. The Board
of Directors may also waive the Rights Plan in respect of a particular Flip-in Event that has
occurred through inadvertence, provided that the Acquiring Person that inadvertently triggered
such Flip-in Event reduces its beneficial holdings to less than 20% of the outstanding Common
Shares within 14 days or any other period that may be specified by the Board of Directors. At any
time prior to the occurrence of a Flip-in Event, the Board of Directors may, subject to the prior
approval of the holders of Common Shares, elect to redeem all, but not less than all, of the
outstanding Rights at a price of $0.0001 per right.
Exemption for Investment Managers
Investment managers (for client accounts), trust companies and pension funds (acting in their
capacity as trustees and administrators) acquiring shares permitting them to hold 20% or more of
the Common Shares are exempt from triggering a Flip-in Event, provided that they are not making,
or are not part of a group making, a takeover bid.
Supplements and Amendments
The Company is authorized to make amendments to the Rights Plan to correct any clerical or
typographical error or to maintain the validity of the Rights Plan as a result of changes in laws
or regulations. Prior to the Meeting, the Company is authorized to amend or supplement the Rights
Plan as the Board of Directors may in good faith deem necessary or advisable. The Company will
issue a press release relating to any material amendment made to the Rights Plan prior to the
Meeting and will advise
the shareholders of any such amendment at the Meeting. Material amendments or supplements to the
Rights Plan will require, subject to the regulatory authorities, the prior approval of the
shareholders or, after the Separation Time, holders of Rights.
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Canadian Income Tax Consequences of the Rights Plan
Under the Income Tax Act (Canada) (the Tax Act), while the matter may be debated, the issue of
the Rights under the Rights Plan may be a taxable benefit, the fair market of value of which must
be included in the income of a recipient. The Company considers that the Rights, when issued, will
have no or negligible monetary value, there being only a remote possibility that the Rights will
ever be exercised. The Rights will be considered to have been acquired at no cost. The holder of
Rights may realize income or be subject to withholding tax under the Tax Act if the Rights become
exercisable, are exercised and are otherwise disposed of.
The information provided above is of a general nature and is not intended to constitute, nor should
it be construed as, legal or tax advice to any particular holder of Common Shares. Such holders are
advised to consult their own tax advisors regarding the consequences of acquiring, holding,
exercising or otherwise disposing of their Rights, taking into account their own particular
circumstances and applicable federal, provincial, territorial or foreign legislation.
Recommendation of the Board of Directors
At the Meeting, shareholders will be asked to consider and, if deemed advisable, to approve the
Rights Plan by passing Resolution 2010-1, substantially in the form of the resolution attached as
Appendix A to this Circular. Resolution 2010-1 must be passed by a majority of the votes cast by
shareholders entitled to vote who are represented in person or by proxy at the Meeting and who vote
in respect of that resolution.
The Board of Directors considers the approval of the Rights Plan to be appropriate and in the best
interests of the Company and recommends that shareholders vote in favour of Resolution 2010-1 to
approve the Rights Plan.
Unless instructions are given to vote against, or abstain from voting on, Resolution 2010-1, the
persons whose names appear in the enclosed form of proxy will vote FOR the passing of Resolution
2010-1.
E. Other Matters to be Acted Upon
The Company will consider and transact such other business as may properly come before the
Meeting or any adjournment thereof. Management of the Company knows of no other matters to come
before the Meeting other than those referred to in the Notice of Meeting. Should any other matters
properly come before the Meeting, the Common Shares represented by the proxy solicited hereby will
be voted on such matter in accordance with the best judgment of the persons voting the proxy.
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ITEM II. COMPENSATION
The compensation of the executive officers and directors of the Company is determined by the
compensation committee of the Company (the Compensation Committee). The Compensation Committee is
composed of four (4) independent directors, namely A. Jean de Grandpré, who is the chair of the
Compensation Committee, Paul Pommier, Bernard Reculeau and Jean-Denis Talon. The mandate,
obligations and duties of the Compensation Committee are described in Appendix B to this Circular.
The Compensation Committee reviews the compensation of executive officers at a meeting held after
the end of the Companys financial year. At this meeting, the Compensation Committee reviews the
compensation of executive officers for the past financial year and determines the compensation for
the ensuing year.
1. Executive Compensation
A. Compensation Discussion & Analysis
Objectives of the Compensation Program
To achieve its business plan, the Company requires a strong and capable executive team. This
justifies the need for an executive program that will attract, retain, motivate and reward its
executive officers. The Company is committed to a compensation policy that is competitive and
drives business performance.
What the Compensation Program is Designed to Reward
The compensation program of the Company (the Compensation Program) is designed to reward the
executive officers for implementing strategies, both in the short and the long term, to realize the
business plan of the Company to advance its drug development and commercialization programs. It is
also designed to enhance its share value and, thereby, create economic value.
The Compensation Program provides reasonable and competitive total executive compensation.
Remuneration and incentive components are established to compete with remuneration practices of
similar companies that are involved in the biopharmaceutical and pharmaceutical industries.
To establish base salary and bonus compensation levels, the Company generally studies, among other
things, the competitive market environment and reviews information published in the Rx & D
Compensation Survey and the proxy circulars of other publicly listed biotechnology companies whose
stage of development and market capitalization are similar or more advanced than those of the
Company. The Compensation Committee also takes into consideration the financial needs of the
Company, its business plan and the Companys annual corporate objectives before determining the
Companys own Compensation Program.
At the beginning of the financial year 2009, the Compensation Committee met to determine the base
salary of each executive officer. In order to set the base salary of its executive officers for
that financial year, the Compensation Committee considered publicly available economic data
regarding the variation of the Consumer Price Index and publicly available data regarding
forecasted salary percentage increase for that year. The Compensation Committee also considered the
importance of the objectives to be attained by the executive officers and the Company during that
year. No independent third-party report was prepared. However, at the end of the financial year
2009, the Compensation Committee retained the services of Towers Perrin, an independent third-party
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consulting firm, to conduct an annual comparative analysis of the compensation paid to its
executive officers against the compensation paid to executive officers in various companies. Towers
Perrins analysis was based on a reference market of the following 19 companies (the Benchmarked
Companies):
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Angiotech Pharmaceuticals Inc. |
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AstraZeneca Canada Inc. |
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Beckman Coulter Canada Inc. |
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Biogen Idec Canada Inc. |
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Hoffman La Roche Limited |
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Life Technologies Corporation |
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Transition Therapeutics Inc. |
The Benchmarked Companies were reviewed and agreed to by the Compensation Committee.
Overall, Towers Perrins report concluded that the aggregate compensation paid to the Named
Executive Officers (as defined below) of the Company was below the median and, in certain
circumstances, at the median of the aggregate compensation paid by the Benchmarked Companies to
individuals holding the same position as those of the Named Executive Officers.
Decision-Making Process
The proposed annual compensation for each of the executive officers, other than for the President
and Chief Executive Officer, is presented by the President and Chief Executive Officer to the
Compensation Committee and reviewed by the Compensation Committee. The compensation for the
President and Chief Executive Officer is determined by the Compensation Committee. The Compensation
Committee reports and makes a recommendation to the Board of Directors on the proposed compensation
of executive officers. The Board of Directors approves grants of options if, upon the
recommendation of the Compensation Committee, it deems it advisable.
Elements of Compensation Program
The major elements of the Companys executive Compensation Program are base salary, short-term
performance reward program that takes the form of cash bonuses, and long-term incentives through
the granting of stock options. All proposed changes to any compensation component of an executive
officer are first reviewed internally by the President and Chief Executive Officer and the Senior
Executive Vice President and Chief Financial Officer. The proposed changes are then presented to
the Compensation Committee.
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Base Salary
Base salaries for each of the executive officers are based on the experience, expertise and
competencies of each executive officer. In reference to the Benchmarked Companies used for
comparison, the salaries of the Named Executive Officers and other executive officers are generally
at the median (50th percentile). However, the Compensation Committee has no firm policy
on setting the base salary at the median and, accordingly, base salaries may be set below or above
the median.
Performance Reward Program
The short-term performance reward program is designed to recognize the contribution of each
executive officer in helping the Company to attain its corporate objectives and to increase its
value. Bonuses are granted if the annual corporate objectives are met by the Company and in
accordance with the individual performance and the results achieved or surpassed by such individual
in connection with such corporate objectives. When and if the Company generates significant
revenues from the sale of his products, financial criteria will also be factored into the
determination of this program.
The target bonus payment for each of the President and Chief Executive Officer and the Senior
Executive Vice President and Chief Financial Officer is set at 50% of their respective base salary.
For the other three Named Executive Officers, the target bonus payment is set at 33 1/3% of their
respective base salary. These target bonus payments are at the 75th percentile when
compared against the Benchmarked Companies, except for the target bonus payment of the President
and Chief Executive Officer which is at the median.
For the year ended November 30, 2009, the Companys principal objective was to file a complete New
Drug Application to the Food and Drug Administration in the United States and to file it by the end
of the second quarter. The second corporate objective of the Company consisted in organizing
working committees with our commercial partner in the United States for the preparation of the
commercialization of tesamorelin in such country further to the execution of our collaboration and
licensing agreement with EMD Serono, Inc. at the beginning of our fiscal year 2009. The third
corporate objective of the Company was related to the negotiations of supply agreements with
third-party service providers to ensure that the Company would have the manufacturing capacity to
supply tesamorelin to its commercial partner in the United States for commercial sale in this
country. The fourth corporate objective of the Company consisted in exploring the potential of
tesamorelin to be approved in countries other than the United States for the treatment of excess
abdominal fat in HIV-infected patients with lipodystrophy while seeking partners to commercialize
tesamorelin in those countries. The fifth corporate objective of the Company consisted in pursuing
the evaluation of other clinical programs in which tesamorelin could be developed. Finally, the
last objective was to meet each of these objectives in a cost-efficient manner to conserve the
Companys cash position and to manage its burn rate.
The objectives of the Named Executive Officers were aligned with those of the Company. The
Compensation Committee did not mathematically weight the objectives of the Company against each
other and the objectives of the Named Executive Officers against those of the Company in
determining the compensation of the Named Executive Officers for the last financial year. The
Compensation Committee rather considered all objectives with the attainment of the first corporate
objective as being the most relevant one in order to set the compensation of the Named Executive
Officers for the last financial year.
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Long-Term Incentive Program
The Companys long-term incentive program is composed of its share option plan (the Share Option
Plan) which was originally adopted on December 6, 1993, and subsequently amended from time to
time, in order to attract, retain, motivate employees in key positions and align their interests
with those of the Companys shareholders by allowing optionees to participate in the increased
value of the Common Shares. The Company has no share-based award. The Company has a share purchase
plan but the share purchase plan is available to all employees of the Company and the decision to
subscribe for Common Shares under this plan rests with each employee. For a description of the
share purchase plan, see Other Information Description of the Share Purchase Plan below.
The number of options granted is determined on the basis of the position of each executive officer,
the attainment of corporate objectives and the value of the options at the time of grant as part of
the total compensation of an executive officer. When assessing whether options should be granted to
an executive officer, the Compensation Committee also factors in the number of options held by an
executive officer, their vesting periods, expiry dates and exercise prices. When compared against
the value of options granted by the Benchmarked Companies to individuals holding the same positions
as those of the Named Executive Officers, the estimated annualized value of the options granted by
the Company during the last five (5) years to its Named Executive Officers is below and, in certain
circumstances, at the median.
Description of the Share Option Plan
A maximum of 5,000,000 Common Shares have been reserved for stock option grants under the Share
Option Plan, of which, as at the date of the Circular, 999,001 options remain available for
issuance.
The Board of Directors administers the Share Option Plan. The Board of Directors designates the
optionees and determines the number of Common Shares underlying these options, the vesting period,
the exercise price and the expiry date of each option, as well as all other related matters, the
whole in compliance with the terms of the Share Option Plan and applicable legislative provisions
established by the securities regulatory authorities. Options granted to executive officers
generally vest as to 33 1/3% on each year starting twelve (12) months after the date of grant. The
Board of Directors can modify or terminate the Share Option Plan subject to compliance with the
rules set forth by regulatory authorities. However, certain amendments require the approval of a
majority of the voting shareholders of the Company.
Unless otherwise determined by the Board of Directors, the options granted pursuant to the Share
Option Plan may be exercised within a maximum period of ten (10) years following their date of
grant, unless the optionees employment is terminated, other than for death, in which case the
optionees unexercised vested options, if any, may be exercised within a period of one hundred
eighty (180) days following the date of the employees termination. In the event of the death of an
optionee prior to the expiry date of his options, the optionees legal personal representative may
exercise the optionees unexercised vested options within twelve (12) months after the date of the
optionees death. The options granted in accordance with the Share Option Plan cannot be
transferred or assigned.
The exercise price at which the options may be granted pursuant to the Share Option Plan cannot be
less than the closing price of the Common Shares on the TSX on the day preceding the date of grant
of the options.
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In addition, the Share Option Plan states that the number of Common Shares that may be issued
to insiders, at any time, under all security based compensation arrangements of the Company, cannot
exceed 10% of the outstanding Common Shares of the Company, and the number of Common Shares issued
to insiders, within any one year period, under all security based compensation arrangements, cannot
exceed 10% of the outstanding Common Shares. The number of Common Shares that may be issued to
non-employee directors, within any one year period, under all security based compensation
arrangements, cannot exceed 0.5% of the outstanding Common Shares of the Company.
During the financial year ended November 30, 2009, the Company granted options under the Share
Option Plan providing for the purchase of 680,500 Common Shares. From December 1, 2009 to February
22, 2010, the Company granted 265,000 options under the Share Option Plan, 155,000 of which were
granted to the Named Executive Officers as part of their compensation for the last financial year
ended November 30, 2009.
The following table sets forth the information regarding the equity compensation plan of the
Company as at November 30, 2009.
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|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
|
|
to be Issued upon |
|
|
|
|
|
|
|
|
|
|
Exercise of |
|
|
|
|
|
|
Number of Securities |
|
|
|
Outstanding Options |
|
|
|
|
|
|
Remaining Available |
|
|
|
(% of Issued and |
|
|
Weighted-average |
|
|
for Future Issuance |
|
|
|
Outstanding Share |
|
|
Exercise Price of |
|
|
under Equity |
|
Plan Category |
|
Capital) |
|
Outstanding Option |
|
Compensation Plan |
|
Equity Compensation
Plan Approved by
Shareholders |
|
|
2,665,800
(4.41%) |
|
|
$ |
5.20 |
|
|
|
1,244,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation
Plans Not Approved
by Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,665,800 |
|
|
$ |
5.20 |
|
|
|
1,244,834 |
|
|
|
B. Summary Compensation Table
The summary compensation table below details compensation for the financial year ended November 30,
2009 for each of the President and Chief Executive Officer, the Senior Executive Vice President and
Chief Financial Officer, and the three other most highly compensated executive officers of the
Company (collectively the Named Executive Officers) for services rendered in all capacities.
|
|
|
|
|
|
Statement of Executive Compensation
|
|
Page 15 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity incentive plan compensation ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option- |
|
|
|
|
|
|
|
|
|
All other |
|
|
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
based |
|
|
Annual |
|
|
Long-term |
|
|
Pension |
|
|
compen- |
|
|
|
|
principal |
|
|
|
|
|
Salary |
|
|
Share-based awards |
|
|
awards(1) (2) |
|
|
incentive |
|
|
incentive |
|
|
value |
|
|
sation(13) |
|
|
Total compensation |
|
position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
plans |
|
|
plans |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
Yves Rosconi
President and
Chief Executive
Officer |
|
|
2009 |
|
|
|
426,635 |
|
|
|
|
|
|
|
80,820 |
(3) |
|
|
225,000 |
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
732,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luc Tanguay
Senior Executive
Vice President and
Chief Financial
Officer |
|
|
2009 |
|
|
|
353,354 |
|
|
|
|
|
|
|
67,350 |
(4) |
|
|
176,000 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
596,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christian Marsolais
Vice President,
Clinical Research
and Medical Affairs |
|
|
2009 |
|
|
|
220,846 |
|
|
|
|
|
|
|
156,040 |
(5) |
|
|
100,000 |
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martine Ortega
Vice President,
Compliance and
Regulatory Affairs |
|
|
2009 |
|
|
|
215,827 |
|
|
|
|
|
|
|
125,165 |
(6) |
|
|
110,000 |
(11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jocelyn Lafond
Vice President,
Legal Affairs,
and Corporate
Secretary |
|
|
2009 |
|
|
|
200,769 |
|
|
|
|
|
|
|
142,570 |
(7) |
|
|
66,000 |
(12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409,339 |
|
|
|
|
(1) |
|
The value of the awards is comprised of two grants that occurred during the last financial
year. The first grant was made on December 18, 2008 (the December 2008 Grant) and the second
occurred on December 8, 2009 (the December 2009 Grant). Only the value of the options
received by Ms. Ortega, Mr. Marsolais and Mr. Lafond as part of the December 2008 Grant and
resulting as compensation for the financial year ended November 30, 2009 has been included in
this table. The value of the option-based awards was calculated using the Black-Scholes-Merton
model using the following assumptions: |
|
|
(i) |
|
Risk-free interest rate: 1.79%; |
|
|
(ii) |
|
Expected volatility in the market price of the Common Shares: 79.33%; |
|
|
(iii) |
|
Expected dividend yield: 0%; and |
|
|
(iv) |
|
Expected life: 6 years. |
|
|
|
|
Fair value per option: $1.235. |
|
|
(i) |
|
Risk-free interest rate: 2.46%; |
|
|
(ii) |
|
Expected volatility in the market price of the Common Shares: 80.96%; |
|
|
(iii) |
|
Expected dividend yield: 0%; and |
|
|
(iv) |
|
Expected life: 6 years. |
|
|
|
|
Fair value per option: $2.694 |
|
|
|
(2) |
|
The options granted as part of the December 2008 Grant vest over a three (3) year period as
to 33 1/3% beginning December 18, 2009. The options granted as part of the December 2009 Grant
vest over a three (3) year period as to 33 1/3% beginning on December 8, 2010. |
|
(3) |
|
Mr. Rosconi was granted 30,000 options as part of the December 2009 Grant. |
|
(4) |
|
Mr. Tanguay was granted 25,000 options as part of the December 2009 Grant. |
|
|
|
|
|
|
Statement of Executive Compensation
|
|
Page 16 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
|
|
(5) |
|
Mr. Marsolais was granted 35,000 options as part of the December 2009 Grant. Mr. Marsolais
was also granted 50,000 options as part of the December 2008 Grant, of which 25,000 were
granted pursuant to the terms of his employment agreement and 25,000 were granted further to
his appointment as Vice President in August 2007. Subject to Mr. Marsolais being employed by
the Company, these 50,000 options were scheduled to be granted in the financial year 2008.
However, as a result of the strategic review process that was ongoing during this financial
year, the Board of Directors decided to defer the grant of those options until completion of
the strategic review process. |
|
(6) |
|
Ms. Ortega was granted 35,000 options as part of the December 2009 Grant. Ms. Ortega was also
granted 25,000 options as part of the December 2008 Grant further to her appointment as Vice
President in August 2007. Subject to Ms. Ortega being employed by the Company, these 25,000
options were scheduled to be granted in the financial year 2008. However, as a result of the
strategic review process that was ongoing during this financial year, the Board of Directors
decided to defer the grant of those options until completion of the strategic review process. |
|
(7) |
|
Mr. Lafond was granted 30,000 options as part of the December 2009 Grant. Mr. Lafond was also
granted 50,000 options as part of the December 2008 Grant, of which 25,000 were granted
pursuant to the terms of his employment agreement and 25,000 were granted further to his
appointment as Vice President in August 2007. Subject to Mr. Lafond being employed by the
Company, these 50,000 options were scheduled to be granted in the financial year 2008.
However, as a result of the strategic review process that was ongoing during this financial
year, the Board of Directors decided to defer the grant of those options until completion of
the strategic review process. |
|
(8) |
|
The amount received by Mr. Rosconi represents 106% of his targeted bonus ($212,873). As
President and Chief Executive Officer of the Company, Mr. Rosconis objectives were aligned
with the Companys objectives. The Compensation Committee determined that he had exceeded his
objectives by leading the scientific and regulatory teams in filing a New Drug Application to
the Food and Drug Administration in the United States before the end of the second quarter. |
|
(9) |
|
The amount received by Mr. Tanguay represents 100% of his targeted bonus ($176,000). As
Senior Executive Vice President and Chief Financial Officer of the Company, Mr. Tanguays
objectives were aligned with those of the Company and included (i) managing the Companys
liquidities to ensure the corporate objectives would be attained in a cost-efficient manner
and according to the annual budget; (ii) supervising the negotiation of supply agreements with
third parties for the manufacture of tesamorelin on a commercial scale; (iii) overseeing the
internal controls and process of the Company for compliance with securities regulation; (iv)
supervising the process regarding the preparation of the Company to the new IFRS accounting
rules; and (v) overseeing the investors relations programme. |
|
(10) |
|
The amount received by Mr. Marsolais represents 135% of his targeted bonus ($73,615). As Vice
President, Clinical Research and Medical Affairs, of the Company, Mr. Marsolaiss objective
were aligned with those of the Company and consisted in the preparation and completion of the
New Drug Application to be filed with the Food and Drug Administration of the United States. |
|
(11) |
|
The amount received by Ms. Ortega represents 153% of her targeted bonus ($71,942). As Vice
President, Compliance and Regulatory Affairs, of the Company, Ms. Ortegas objectives were
aligned with those of the Company and included (i) leading the preparation of the New Drug
Application to ensure compliance with the Federal Food, Drug, and Cosmetic Act (United
States); and (ii) managing the filing process of the New Drug Application with the Food and
Drug Administration in the United States. |
|
(12) |
|
The amount received by Mr. Lafond represents 99% of his targeted bonus ($66,922). As Vice
President, Legal Affairs, and Corporate Secretary, of the Company, Mr. Lafonds objectives
were aligned with those of the Company. The main objective of Mr. Lafond consists in
overseeing the legal needs of the Company. In addition, the Compensation Committee determined
that he had achieved the following objectives (i) overseeing the anti-trust issues regarding
the execution of the collaboration and licensing agreement with
EMD Serono, Inc.; (ii) assisting with the negotiations of the supply agreements to manufacture
tesamorelin on a commercial scale; and (iii) supporting the legal needs of both the clinical
research and regulatory teams. |
|
(13) |
|
Perquisites for each Named Executive Officer have not been included as they do not reach the
prescribed threshold of the lesser of $50,000 and 10% of each of the respective Named
Executive Officers salary for the last financial year. |
|
|
|
C. Incentive Plan Awards |
|
|
|
Outstanding Option-Based Awards and Share-Based Awards |
|
|
|
The table below details the outstanding option-based awards and share-based awards as at November
30, 2009 for each of the Named Executive Officers. |
|
|
|
|
|
|
Statement of Executive Compensation
|
|
Page 17 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option-Based Awards |
Share-Based Awards |
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
Market or payout |
|
|
|
securities |
|
|
|
|
|
|
|
|
|
|
Value of unexercised |
|
|
or units of shares |
|
|
value of |
|
|
|
underlying |
|
|
Option exercice |
|
|
|
|
|
|
in-the-money |
|
|
that have not |
|
|
share-based awards |
|
|
|
unexercised options |
|
|
price |
|
|
Option expiration |
|
|
options (1) |
|
|
vested |
|
|
that have not |
|
Name |
|
(#) |
|
|
($) |
|
|
date |
|
|
($) |
|
|
(#) |
|
|
vested ($) |
|
|
Yves Rosconi |
|
|
133,334 |
|
|
|
2.61 |
|
|
|
2014.10.01 |
|
|
|
90,667 |
|
|
|
|
|
|
|
|
|
President and |
|
|
133,334 |
|
|
|
1.24 |
|
|
|
2015.10.01 |
|
|
|
273,335 |
|
|
|
|
|
|
|
|
|
Chief Executive Officer |
|
|
25,000 |
|
|
|
8.23 |
|
|
|
2017.01.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
37,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luc Tanguay |
|
|
200,000 |
|
|
|
10.40 |
|
|
|
2011.10.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Executive |
|
|
200,000 |
|
|
|
8.00 |
|
|
|
2012.10.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President and |
|
|
125,000 |
|
|
|
1.94 |
|
|
|
2016.02.08 |
|
|
|
168,750 |
|
|
|
|
|
|
|
|
|
Chief Financial Officer |
|
|
25,000 |
|
|
|
8.23 |
|
|
|
2017.01.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
29,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christian Marsolais |
|
|
25,000 |
|
|
|
11.48 |
|
|
|
2017.07.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President, |
|
|
25,000 |
|
|
|
10.60 |
|
|
|
2017.08.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical Research |
|
|
1,000 |
|
|
|
8.50 |
|
|
|
2018.01.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
and Medical Affairs |
|
|
65,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
96,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martine Ortega |
|
|
25,000 |
|
|
|
1.42 |
|
|
|
2016.07.06 |
|
|
|
46,750 |
|
|
|
|
|
|
|
|
|
Vice President, |
|
|
10,000 |
|
|
|
8.23 |
|
|
|
2017.01.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compliance and |
|
|
25,000 |
|
|
|
11.48 |
|
|
|
2017.07.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Affairs |
|
|
25,000 |
|
|
|
10.60 |
|
|
|
2017.08.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
8.50 |
|
|
|
2018.01.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
59,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jocelyn Lafond |
|
|
25,000 |
|
|
|
8.29 |
|
|
|
2017.03.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice President, |
|
|
25,000 |
|
|
|
10.60 |
|
|
|
2017.08.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal Affairs, |
|
|
65,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
96,850 |
|
|
|
|
|
|
|
|
|
and Corporate
Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value of unexercised in-the-money options at financial year end is the difference between
the closing price of the Common Shares on November 30, 2009 ($3.29) on the TSX and the
respective exercise prices of the options. The value shown in this table does not represent
the actual value that a Named Executive Officer would have received if the options had been
exercised as at November 30, 2009 since some of these options were not fully vested as of that
date and, therefore, were not exercisable. |
Incentive Plan Awards Value vested or earned during the year
The table below shows the value vested or earned during the year under each incentive plan as at
November 30, 2009 for each of the Named Executive Officers.
|
|
|
|
|
|
Statement of Executive Compensation
|
|
Page 18 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity incentive |
|
|
|
Option-based awards |
|
|
Share-based awards |
|
|
plan compensation |
|
|
|
Value vested during |
|
|
Value vested |
|
|
Value earned |
|
|
|
the year(1) |
|
|
during the year |
|
|
during the year |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
Yves Rosconi
President and
Chief Executive Officer |
|
|
|
|
|
|
|
225,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luc Tanguay
Senior Executive
Vice President and
Chief Financial Officer |
|
|
|
|
|
|
|
176,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christian Marsolais
Vice President,
Clinical Research
and Medical Affairs |
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martine Ortega
Vice President,
Compliance and
Regulatory Affairs |
|
7,167 (2) |
|
|
|
|
|
110,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jocelyn Lafond
Vice President,
Legal Affairs,
and Corporate Secretary |
|
|
|
|
|
|
|
66,000 |
|
|
|
|
(1) |
|
The value is determined by assuming that the options vested during the financial year would
have been exercised on the vesting date. The value corresponds to the difference between the
closing price of the Common Shares on the TSX on the vesting date and the exercise price of
the options on that date. |
|
(2) |
|
8,334 options having an exercise price of $1.42 vested on July 6, 2009. On that date, the
closing price of the Common Shares on the TSX was $2.28. |
D. Termination and Change of Control Provisions
Below is a summary of the employment agreements of each of the Named Executive Officers together
with a table detailing the value of the severance payment that would be payable by the Company to
each Named Executive Officer pursuant to his employment agreement if one of the events described in
the table had occurred on November 30, 2009.
Yves Rosconi
President and Chief Executive Officer
On October 21, 2004, the Company entered into an employment agreement for an indeterminate term
with Mr. Yves Rosconi. In addition to his base salary, Mr. Rosconi is entitled to the Companys
benefits program and is eligible to receive an annual bonus based on attainment of objectives set
annually by the Companys Board of Directors. Mr. Rosconi was also entitled to stock options, which
have all been granted. These options vested over a three-year period from the date of grant. Under
the terms of the agreement, Mr. Rosconi agreed to non-competition, non-solicitation, non-disclosure
and assignment of intellectual property provisions in favour of the Company. If the Company
terminates Mr. Rosconis employment without just and sufficient cause, he will receive an
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Statement of Executive Compensation
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Theratechnologies Inc. |
amount equal to twelve (12) months of compensation (including bonus based on the last
granted and the value of the Companys benefits to which he was then entitled). The payment of
this amount will be the sole monetary obligation of the Company. Furthermore, in the event of a
Change of Control (as defined below), his employment agreement provides for an indemnity equal to
twenty-four (24) months of compensation (including bonus based on the last granted and the
value of the Companys benefits to which he was then entitled) if Mr. Rosconis employment is
terminated by the Company, and twelve (12) months if Mr. Rosconi resigns on his own free will. In
Mr. Rosconis agreement, a Change of Control is defined as a successful take-over bid, as such
term is defined in the Securities Act (Québec).
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
Value of Stock Options(1) |
|
Events |
|
($) |
|
|
($) |
|
Retirement (2) |
|
|
|
|
|
|
364,002 |
|
|
|
|
|
|
|
|
|
|
Termination of Employment
without Just Cause (2) |
|
|
678,535 |
(4) |
|
|
364,002 |
|
|
|
|
|
|
|
|
|
|
Termination of Employment
in the event of
a Change of Control (3) |
|
|
1,357,070 |
(4) |
|
|
401,252 |
|
|
|
|
|
|
|
|
|
|
Voluntary Resignation
in the event of
a Change of Control (3) |
|
|
678,535 |
(4) |
|
|
401,252 |
|
|
|
|
|
|
|
|
|
|
Voluntary Resignation (2) |
|
|
|
|
|
|
364,002 |
|
|
|
|
(1) |
|
The value assumes that upon the occurrence of an event, all vested options would be
exercised. The value is the difference between the closing price of the Common Shares on
November 30, 2009 on the TSX ($3.29) and the respective exercise price of each vested option
as at November 30, 2009. |
|
(2) |
|
Under the Share Option plan, the termination of a persons employment with the Company
entitles him to exercise his vested options over a six-month period after the termination
date. |
|
(3) |
|
Given the different definitions of Change of Control used in the employment agreements of
the Named Executive Officers, in computing the value of the stock options in the event of a
Change of Control, the Company assumed that all unvested options would vest as per the terms
of Section 5.5 of its Share Option Plan and that all vested options having an exercise price
lower than the closing price of the Common Shares on November 30, 2009 on the TSX ($3.29)
would be exercised. |
|
(4) |
|
As at November 30, 2009, the last bonus paid to Mr. Rosconi was the bonus he received for the
financial year 2008 which amounted to $230,000. |
Luc Tanguay
Senior Executive Vice President and Chief Financial Officer
The Company entered into an employment agreement for an indeterminate term with Mr. Luc Tanguay on
October 30, 2001. His agreement was subsequently amended on May 9, 2002, June 7, 2004 and February
8, 2006. In addition to his base salary, Mr. Tanguay is entitled to the Companys benefits program
and is eligible to receive an annual bonus based on the attainment of annual objectives. Mr.
Tanguay was also entitled to stock options, which have all been granted. Under the terms of the
agreement, Mr. Tanguay agreed to non-competition, non-solicitation, non-disclosure and assignment
of intellectual property provisions in favour of the Company. If the Company terminates the
employment of Mr. Tanguay without just and sufficient cause, he will receive an amount equal to
twenty-four (24) months of compensation (including bonus based on the last granted and the
value of the Companys benefits to which he was then entitled). The payment of this amount will be
the sole monetary obligation of the Company. In addition, in the event the employment of Mr.
Tanguay is terminated for any reason, including death, he will be entitled to exercise his stock
options over a 24-month period, subject to the prior expiry of his stock
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Statement of Executive Compensation
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Management Proxy Circular
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|
Theratechnologies Inc. |
options in accordance with their terms. Furthermore, in the event of a Change of Control (as
defined below), his employment agreement provides for an indemnity equal to twenty-four (24) months
of compensation (including bonus based on the last granted and the value of the Companys
benefits to which he was then entitled) if Mr. Tanguays employment is terminated by the Company,
and twelve (12) months if Mr. Tanguay resigns on his own free will. In Mr. Tanguays agreement, a
Change of Control is defined as a successful take-over bid, as such term is defined in the
Securities Act (Québec).
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
Value of Stock Options(1) |
|
Events |
|
($) |
|
|
($) |
|
Retirement (2) |
|
|
|
|
|
|
168,750 |
|
|
|
|
|
|
|
|
|
|
Termination of Employment without
Just Cause (2) |
|
|
1,140,508 |
(4) |
|
|
168,750 |
|
|
|
|
|
|
|
|
|
|
Termination of Employment
in the event of
a Change of Control (3) |
|
|
1,140,508 |
(4) |
|
|
198,550 |
|
|
|
|
|
|
|
|
|
|
Voluntary Resignation
in the event of
a Change of Control (3) |
|
|
570,254 |
(4) |
|
|
198,550 |
|
|
|
|
|
|
|
|
|
|
Voluntary Resignation (2) |
|
|
|
|
|
|
168,750 |
|
|
|
|
(1) |
|
The value assumes that upon the occurrence of an event, all vested options would be
exercised. The value is the difference between the closing price of the Common Shares on
November 30, 2009 on the TSX ($3.29) and the respective exercise price of each vested option
as at November 30, 2009. |
|
(2) |
|
Under the Share Option plan, the termination of a persons employment with the Company
entitles him to exercise his vested options over a six-month period after the termination
date. |
|
(3) |
|
Given the different definitions of Change of Control used in the employment agreements of
the Named Executive Officers, in computing the value of the stock options in the event of a
Change of Control, the Company assumed that all unvested options would vest as per the terms
of Section 5.5 of its Share Option Plan and that all vested options having an exercise price
lower than the closing price of the Common Shares on November 30, 2009 on the TSX ($3.29)
would be exercised. |
|
(4) |
|
As at November 30, 2009, the last bonus paid to Mr. Tanguay was the bonus he received for the
financial year 2008 which amounted to $195,000. |
Christian Marsolais
Vice President, Clinical Research and Medical Affairs
The Company entered into an employment agreement for an indeterminate term with Mr. Christian
Marsolais on April 13, 2007. In addition to his base salary, Mr. Marsolais is entitled to the
Companys benefits program and is eligible to receive an annual bonus based on attainment of
objectives set annually by the President and Chief Executive Officer. Mr. Marsolais was also
entitled to stock options, which have all been granted. These stock options vest over a three-year
period from
the date of grant. Under the terms of the agreement, Mr. Marsolais agreed to non-competition,
non-solicitation, non-disclosure and assignment of intellectual property provisions in favour of
the Company. If the Company terminates Mr. Marsolais employment without just and sufficient cause,
he will receive an amount equal to nine (9) months of his annual base salary. The payment of this
amount will be the sole monetary obligation of the Company.
|
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Statement of Executive Compensation
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Page 21 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
Value of Stock Options(1) |
|
Events |
|
($) |
|
|
($) |
|
Retirement (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of Employment
without Just Cause (2) |
|
|
165,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of Employment
in the event of
a Change of Control (3) |
|
|
165,634 |
|
|
|
96,850 |
|
|
|
|
|
|
|
|
|
|
Voluntary Resignation
in the event of
a Change of Control (3) |
|
|
|
|
|
|
96,850 |
|
|
|
|
|
|
|
|
|
|
Voluntary Resignation (2) |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value assumes that upon the occurrence of an event, all vested options would be
exercised. The value is the difference between the closing price of the Common Shares on
November 30, 2009 on the TSX ($3.29) and the respective exercise price of each vested option
as at November 30, 2009. |
|
(2) |
|
Under the Share Option plan, the termination of a persons employment with the Company
entitles him to exercise his vested options over a six-month period after the termination
date. |
|
(3) |
|
Given the different definitions of Change of Control used in the employment agreements of
the Named Executive Officers, in computing the value of the stock options in the event of a
Change of Control, the Company assumed that all unvested options would vest as per the terms
of Section 5.5 of its Share Option Plan and that all vested options having an exercise price
lower than the closing price of the Common Shares on November 30, 2009 on the TSX ($3.29)
would be exercised. |
Martine Ortega
Vice President, Compliance and Regulatory Affairs
The Company entered into an employment agreement for an indeterminate term with Ms. Martine Ortega
on May 11, 2006. In addition to her base salary, Ms. Ortega is entitled to the Companys benefits
program and is eligible to receive an annual bonus based on attainment of objectives set annually
by the President and Chief Executive Officer. Ms. Ortega was also entitled to stock options, which
have all been granted. These stock options vest over a three-year period from the date of grant.
Under the terms of the agreement, Ms. Ortega agreed to non-solicitation, non-disclosure and
assignment of intellectual property provisions in favour of the Company. If the Company terminates
Ms. Ortegas employment without just and sufficient cause, she will receive an amount equal to nine
(9) months of her annual base salary, if her termination occurs: (i) in the context of an internal
reorganization of the Company or (ii) within two (2) years from the date there occurs a Change of
Control (as defined below) of the Company. The payment of this amount will be the sole monetary
obligation of the Company. In Ms. Ortegas agreement, a Change of Control is defined as a
transaction resulting in the liquidation or winding-up of the Company, delisting of the Companys
Common Shares on a stock exchange, the acquisition by a third party of the control of the Company,
the sale of all or substantially all of the assets of the Company or the privatization or a merger
of the Company.
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Statement of Executive Compensation
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Page 22 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
Value of Stock Options(1) |
|
Events |
|
($) |
|
|
($) |
|
Retirement (2) |
|
|
|
|
|
|
46,750 |
|
|
|
|
|
|
|
|
|
|
Termination of Employment without
Just Cause (2) |
|
|
161,870 |
|
|
|
46,750 |
|
|
|
|
|
|
|
|
|
|
Termination of Employment
in the event of
a Change of Control (3) |
|
|
161,870 |
|
|
|
106,350 |
|
|
|
|
|
|
|
|
|
|
Voluntary Resignation
in the event of
a Change of Control (3) |
|
|
|
|
|
|
106,350 |
|
|
|
|
|
|
|
|
|
|
Voluntary Resignation (2) |
|
|
|
|
|
|
46,750 |
|
|
|
|
(1) |
|
The value assumes that upon the occurrence of an event, all vested options would be
exercised. The value is the difference between the closing price of the Common Shares on
November 30, 2009 on the TSX ($3.29) and the respective exercise price of each vested option
as at November 30, 2009. |
|
(2) |
|
Under the Share Option plan, the termination of a persons employment with the Company
entitles him to exercise his vested options over a six-month period after the termination
date. |
|
(3) |
|
Given the different definitions of Change of Control used in the employment agreements of
the Named Executive Officers, in computing the value of the stock options in the event of a
Change of Control, the Company assumed that all unvested options would vest as per the terms
of Section 5.5 of its Share Option Plan and that all vested options having an exercise price
lower than the closing price of the Common Shares on November 30, 2009 on the TSX ($3.29)
would be exercised. |
Jocelyn Lafond
Vice President, Legal Affairs, and Corporate Secretary
The Company entered into an employment agreement for an indeterminate term with Mr. Jocelyn Lafond
on March 27, 2007. In addition to his base salary, Mr. Lafond is entitled to the Companys benefits
program and is eligible to receive an annual bonus based on attainment of objectives set annually
by the Senior Executive Vice President and Chief Financial Officer. Mr. Lafond was also entitled to
stock options, which have all been granted. These stock options vest over a three-year period from
the date of grant. Under the terms of the agreement, Mr. Lafond agreed to non-disclosure and
assignment of intellectual property provisions in favour of the Company. If the Company terminates
Mr. Lafonds employment without just and sufficient cause, he will receive an amount equal to 12
months of his annual base salary. The payment of this amount will be the sole monetary obligation
of the Company. Furthermore, in the event of a Change of Control, his employment agreement
provides for an indemnity equal to 12 months of his annual base salary if his employment is
terminated or if he resigns of his own free will within 24 months from such Change of Control. In
Mr. Lafonds agreement, a Change of Control is defined as a take-over bid, as such term is
defined in the Securities Act (Québec), and as any transaction pursuant to which a person acquires
the control of the Company.
|
|
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|
|
|
Statement of Executive Compensation
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|
Page 23 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
Value of Stock Options(1) |
|
Events |
|
($) |
|
|
($) |
|
Retirement (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of Employment
without Just Cause (2) |
|
|
200,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of Employment
in the event of
a Change of Control (3) |
|
|
200,769 |
|
|
|
96,850 |
|
|
|
|
|
|
|
|
|
|
Voluntary Resignation
in the event of
a Change of Control (3) |
|
|
200,769 |
|
|
|
96,850 |
|
|
|
|
|
|
|
|
|
|
Voluntary Resignation (2) |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value assumes that upon the occurrence of an event, all vested options would be
exercised. The value is the difference between the closing price of the Common Shares on
November 30, 2009 on the TSX ($3.29) and the respective exercise price of each vested option
as at November 30, 2009. |
|
(2) |
|
Under the Share Option plan, the termination of a persons employment with the Company
entitles him to exercise his vested options over a six-month period after the termination
date. |
|
(3) |
|
Given the different definitions of Change of Control used in the employment agreements of
the Named Executive Officers, in computing the value of the stock options in the event of a
Change of Control, the Company assumed that all unvested options would vest as per the terms
of Section 5.5 of its Share Option Plan and that all vested options having an exercise price
lower than the closing price of the Common Shares on November 30, 2009 on the TSX ($3.29)
would be exercised. |
E. Performance Graph
The following graph compares a cumulative annual total shareholder return on a $100 investment in
the Common Shares of the Company (TH) with a cumulative total shareholder return on the composite
index S&P/TSX (previously known as the Toronto Stock Exchange 300 (TSE 300 Index)) assuming that
all dividends are reinvested (S&P) and the AMEX biotech index (AMEX Biotech).
Return on a $100 Investment
from November 30, 2004 to November 30, 2009
|
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Statement of Executive Compensation
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Page 24 |
Management Proxy Circular
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|
Theratechnologies Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Theratechnologies |
|
|
100,00 |
|
|
|
53,44 |
|
|
|
133,33 |
|
|
|
537,04 |
|
|
|
85,19 |
|
|
|
174,07 |
|
S&P / TSX Composite Index |
|
|
100,00 |
|
|
|
119,87 |
|
|
|
141,22 |
|
|
|
151,60 |
|
|
|
102,66 |
|
|
|
126,77 |
|
AMEX Biotechnology Index |
|
|
100,00 |
|
|
|
129,84 |
|
|
|
148,42 |
|
|
|
159,78 |
|
|
|
114,91 |
|
|
|
171,25 |
|
|
The trend shown in the above performance graph indicates that, as at November 30 of each of
the 2005, 2006, 2007, 2008 and 2009 year, the annual total shareholder return on a $100 investment
in the Common Shares of the Company was above the S&P and approximately the same as the AMEX
Biotech. The base salaries of the Named Executives Officers were not linked to the trend regarding
the annual total shareholder return over the last five years. For the same period, shareholder
return was one of the parameters taken into consideration in establishing the value of the
short-term performance reward for the Named Executive Officers.
F. Other Information
Description of the Share Purchase Plan
On February 16, 1999, the Board of Directors adopted a common share purchase plan (the Share
Purchase Plan). The Share Purchase Plan was thereafter amended from time to time and, more
recently, by the Board of Directors on February 24, 2009. The last amendments to the Share Purchase
Plan were approved by the shareholders on March 26, 2009 at the Companys last annual and special
meeting of shareholders.
The Share Purchase Plan entitles full-time and part-time employees of the Company who, on a
Participation Date (as defined below), are residents of Canada, are not under a probationary period
and do not hold, directly or indirectly, five percent (5%) or more of the Companys outstanding
Common Shares, to directly subscribe for Common Shares of the Company. The Share Purchase Plan
provides that a maximum of 550,000 Common Shares (0.91% of the issued and outstanding Common Shares
as at January 31, 2010) may be offered to employees. During the fiscal year ended November 30,
2009, the Company issued 34,466 Common Shares under the Share Purchase Plan (0.06% of the issued
and outstanding Common Shares as at January 31, 2010). As at the date of the Circular, 210,186
Common Shares remain available for issuance.
On May 1st and November 1st of each year (the Participation Dates), an
employee may subscribe for a number of Common Shares under the Share Purchase Plan for an amount
that does not exceed during such year 10% of his annual gross salary during said year. Under the
Share Purchase Plan, the Board of Directors has the authority to suspend, differ or determine that
no subscription of Common Shares will be allowed on a Participation Date if it is in the best
interest of the Company.
The Share Purchase Plan provides that the number of Common Shares that may be issued to insiders,
at any time, under all security based compensation arrangements of the Company, cannot exceed 10%
of the outstanding Common Shares, and the number of Common Shares issued to insiders, within any
one-year period, under all security based compensation arrangements, cannot exceed 10% of the
outstanding Common Shares.
The subscription price for each new Common Share subscribed pursuant to the Share Purchase Plan is
equal to the weighted average closing price of the Common Shares on the Toronto Stock Exchange
during a period of five (5) days prior to a Participation Date. Employees cannot assign or
otherwise alienate their rights in the Share Purchase Plan.
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|
|
Statement of Executive Compensation
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|
Page 25 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
At the election of an employee, the subscription price for Common Shares may be paid in cash
or through an interest-free loan provided by the Company. The loans provided by the Company under
the Share Purchase Plan may be repayable by equal withholdings from a participants salary for a
period not exceeding two (2) years. All loans may be prepaid at all times. The loans granted to any
employee at any time must not exceed 10% of his current annual gross salary. All Common Shares
subscribed for through an interest-free loan are hypothecated to secure the full and final
repayment of the loan and are held by the trustee, Computershare, until such full repayment. Loans
are immediately due and repayable upon the occurrence of one of the following events: (i) the
termination of the employment of an employee; (ii) the sale or seizure of the Common Shares being
subject to a hypothec; (iii) the bankruptcy or insolvency of an employee; or (iv) the suspension
of the payment of an employees salary or the revocation of his right to salary withholdings.
Shareholder approval is not required for all amendments to the Share Purchase Plan. For example,
the Board of Directors may, without shareholder approval, make certain amendments of the following
nature to the Share Purchase Plan such as: (i) formal minor or technical amendments to any
provision of the Share Purchase Plan; (ii) corrections to any provision of the Share Purchase Plan
containing an ambiguity, defect, error or omission; or (iii) changes that do not require
shareholder approval as hereafter described. However, the following amendments require the approval
by a majority of the shareholders present at a duly called shareholders meeting:
|
(a) |
|
any extension of the term of the Share Purchase Plan; |
|
|
(b) |
|
any increase in the number of Common Shares reserved for issuance under the Share
Purchase Plan; |
|
|
(c) |
|
any increase in the number of Common Shares that may be purchased annually by an
employee; |
|
|
(d) |
|
any change in the formula to determine the subscription price of Common Shares; and |
|
|
(e) |
|
any increase in the amount an employee is authorized to borrow from the Company to
purchase Common Shares under the Share Purchase Plan. |
Indebtedness of Executive Officers
As at the date of the Circular, none of the executive officers was indebted to the Company, other
than for Routine Indebtedness (as defined in Regulation 51-102 respecting Continuous Disclosure
Obligations (Québec)). During the financial year ended on November 30, 2009, none of the executive
officers of the Company was indebted to the Company, other than for Routine Indebtedness.
2. Director Compensation
A. Determination of Director Compensation
The Company has adopted a compensation policy for its directors who are not employed on a full-time
basis by the Company under which they are paid an annual retainer fee as well as attendance fees.
In addition, the Company reimburses the reasonable expenses incurred by each director to attend
meetings of the board or meetings of committees. In January 2008, the Compensation Committee met
and reassessed the compensation paid to all board members, committee members and to the chairs of
each committee. The last assessment of the compensation paid to individuals acting as board
members, committee members and chairs of such committees had
occurred in 2004. The assessment was based on a review of public documents filed by Canadian
companies listed on the TSX or NASDAQ market. Criteriae such as fields of operation, market
|
|
|
Statement of Executive Compensation
|
|
Page 26 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
capitalization, number of employees, stage of development, where applicable, and level of
revenue were taken into consideration by the Compensation Committee in reviewing in 2008 the
compensation paid to board members, committee members and to chairs of each committee. Based on the
recommendation of the Compensation Committee, effective January 1, 2008, the Board of Directors
approved the compensation described in the table below for individuals who are not employees of the
Company who act as board members, committee members and chairs of those committees.
|
|
|
|
|
Position at |
|
|
|
Board Level or |
|
|
|
Committee Level |
|
Compensation |
|
Annual Retainer to Chair of the Board |
|
$ |
100,000 |
|
Annual Retainer to Board Members |
|
$ |
20,000 |
|
Annual Grant of Options (1) |
|
|
10,000 |
(2) |
Attendance Fees Paid for Each Meeting of the Board of Directors
|
|
|
|
|
- - in person |
|
$ |
2,000 |
|
- by conference call |
|
$ |
1,200 |
|
Annual Retainer to Chair of the Audit Committee |
|
$ |
10,000 |
|
Annual Retainer to Chair of each Committee (other than the Audit Committee) |
|
$ |
6,000 |
|
Annual Retainer to Committee Members |
|
$ |
4,000 |
|
Attendance Fees Paid for Each Meeting of a Committee(3)
|
|
|
|
|
- - in person |
|
$ |
1,500 |
|
- by conference call |
|
$ |
1,200 |
|
|
|
|
(1) |
|
Options are usually granted at the board meeting following the annual meeting of
shareholders. |
|
(2) |
|
At the time of the 2008 review, the Compensation Committee had set the annual grant of
options to each director at 10,000. However, as a result of the strategic review process that
was ongoing, the Board of Directors decided that the number of options that each director was
entitled to receive annually was to remain at 5,000. Further to the completion of the
strategic review process, during the last financial year, the Board of Directors passed a
resolution in order to change that number from 5,000 to 10,000. |
|
(3) |
|
No attendance fee is paid for meetings of the Finance Committee. |
B. Director Compensation Table
The following table details all components of the compensation provided to the directors of the
Company in the last financial year and the value thereof.
|
|
|
Statement of Executive Compensation
|
|
Page 27 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees earned |
|
|
Share-based awards |
|
|
Option-based awards(2) |
|
|
Non-equity incentive
plan compensation |
|
|
Pension value |
|
|
All other compensation |
|
|
Total |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
Gilles Cloutier |
|
|
46,767 |
|
|
|
|
|
|
|
12,740 |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
(3) |
|
|
61,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A. Jean de Grandpré |
|
|
62,300 |
|
|
|
|
|
|
|
12,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Goyer (1) |
|
|
38,267 |
|
|
|
|
|
|
|
12,740 |
|
|
|
|
|
|
|
|
|
|
|
1,500 |
(3) |
|
|
52,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gérald A. Lacoste |
|
|
58,200 |
|
|
|
|
|
|
|
12,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Pommier |
|
|
179,200 |
|
|
|
|
|
|
|
12,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard Reculeau |
|
|
39,400 |
|
|
|
|
|
|
|
12,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jean-Denis Talon |
|
|
50,300 |
|
|
|
|
|
|
|
12,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,040 |
|
(1) |
|
The services of Mr. Goyer are provided to the Company by Clinipharm (1987) Inc.
(Clinipharm), a company controlled by Mr. Goyer, and all cash compensation for the services
of Mr. Goyer is paid to this entity. Based on information received from Clinipharm, Mr. Goyer
received from Clinipharm the amount of $10,000 from December 1, 2008 to June 30, 2009. The
fiscal year-end of Clinipharm is different from that of the Company and the amount to be
received, if any, by Mr. Goyer for the period running from July 1, 2009 to November 30, 2009
is unknown. All options are granted to Mr. Goyer, personally. |
|
(2) |
|
The value of the awards is comprised of one grant that occurred on March 28, 2009 (the
March 2009 Grant). As part of the March 2009 Grant, each director was granted 10,000 options
at an exercise price of $1.84. Each option has a ten-year term and vests on the date of grant.
The terms and conditions of those options are governed by the Share Option Plan. |
|
|
The value of the option-based awards was calculated using the Black-Scholes-Merton model using the
following assumptions: |
|
|
|
(i) Risk-free interest rate: 1.9%; |
|
|
|
(ii) Expected volatility in the market price of the Common Shares: 80.27%; |
|
|
|
(iii) Expected dividend yield: 0%; and |
|
|
|
(iv) Expected life: 6 years. |
|
|
|
Fair value per option: $1.274 |
|
|
|
The value of the awards does not include the 5,000 options that were granted as part of the
December 2008 Grant since these options were granted as compensation for the financial year 2008.
These 5,000 options were not granted in the financial year 2008 as a result of the strategic review
process that was ongoing during that financial year. These 5,000 options were granted at an
exercise price of $1.80, vested on the date of grant and have a ten-year term. The terms and
conditions of those options are governed by the Share Option Plan. |
(3) |
|
This amount was paid to each of Mr. Cloutier and Mr. Goyer, through Clinipharm in the
latter case, for their ad hoc advice on certain clinical matters. Both Mr. Cloutier and Mr.
Goyer were formerly on the scientific committee and used to receive an annual compensation of
$2,000 each to act as such. However, for the financial year ended on November 30, 2009, the
Board of Directors determined that it was in the best interests of the Company to abandon this
committee and to compensate Mr. Cloutier and Mr. Goyer if, and when, their services are
required with attendance fees similar to those paid to members of committees. |
C. Incentive Plan Awards
Outstanding Option-Based Awards and Share-Based Awards
The table below details the outstanding option-based awards and the share-based awards as at
November 30, 2009 for each of the directors.
|
|
|
Statement of Executive Compensation
|
|
Page 28 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option-Based Awards |
Share-Based Awards |
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities |
|
|
|
|
|
|
|
|
|
|
Value of |
|
|
Number of shares |
|
|
Market or payout |
|
|
|
underlying |
|
|
Option |
|
|
|
|
|
|
unexercised |
|
|
or units of shares |
|
|
value of share- |
|
|
|
unexercised |
|
|
exercice |
|
|
Option |
|
|
in-the-money |
|
|
that have not |
|
|
based awards that |
|
|
|
options |
|
|
price |
|
|
expiration |
|
|
options(1) |
|
|
vested |
|
|
have not vested |
|
Name |
|
(#) |
|
|
($) |
|
|
date |
|
|
($) |
|
|
(#) |
|
|
($) |
|
|
Gilles Cloutier |
|
|
5,000 |
|
|
|
5.40 |
|
|
|
2013.05.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
3.68 |
|
|
|
2014.05.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.75 |
|
|
|
2015.05.06 |
|
|
|
7,700 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.86 |
|
|
|
2016.03.30 |
|
|
|
7,150 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
8.29 |
|
|
|
2017.03.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
7,450 |
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
1.84 |
|
|
|
2019.03.28 |
|
|
|
14,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A. Jean de Grandpré |
|
|
5,000 |
|
|
|
8.65 |
|
|
|
2010.05.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
11.80 |
|
|
|
2011.05.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
10.55 |
|
|
|
2012.05.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
5.40 |
|
|
|
2013.05.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
3.68 |
|
|
|
2014.05.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.75 |
|
|
|
2015.05.06 |
|
|
|
7,700 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.86 |
|
|
|
2016.03.30 |
|
|
|
7,150 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
8.29 |
|
|
|
2017.03.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
7,450 |
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
1.84 |
|
|
|
2019.03.28 |
|
|
|
14,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Goyer |
|
|
5,000 |
|
|
|
1.75 |
|
|
|
2015.05.06 |
|
|
|
7,700 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.86 |
|
|
|
2016.03.30 |
|
|
|
7,150 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
8.29 |
|
|
|
2017.03.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
7,450 |
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
1.84 |
|
|
|
2019.03.28 |
|
|
|
14,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gérald A. Lacoste |
|
|
5,000 |
|
|
|
1.86 |
|
|
|
2016.03.30 |
|
|
|
7,150 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
8.29 |
|
|
|
2017.03.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
7,450 |
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
1.84 |
|
|
|
2019.03.28 |
|
|
|
14,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Pommier |
|
|
5,000 |
|
|
|
8.65 |
|
|
|
2010.05.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
11.80 |
|
|
|
2011.05.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
10.55 |
|
|
|
2012.05.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
5.40 |
|
|
|
2013.05.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
3.68 |
|
|
|
2014.05.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.75 |
|
|
|
2015.05.06 |
|
|
|
7,700 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.86 |
|
|
|
2016.03.30 |
|
|
|
7,150 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
8.29 |
|
|
|
2017.03.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
7,450 |
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
1.84 |
|
|
|
2019.03.28 |
|
|
|
14,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard Reculeau |
|
|
5,000 |
|
|
|
1.86 |
|
|
|
2016.03.30 |
|
|
|
7,150 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
8.29 |
|
|
|
2017.03.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Executive Compensation
|
|
Page 29 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option-Based Awards |
Share-Based Awards |
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities |
|
|
|
|
|
|
|
|
|
|
Value of |
|
|
Number of shares |
|
|
Market or payout |
|
|
|
underlying |
|
|
Option |
|
|
|
|
|
|
unexercised |
|
|
or units of shares |
|
|
value of share- |
|
|
|
unexercised |
|
|
exercice |
|
|
Option |
|
|
in-the-money |
|
|
that have not |
|
|
based awards that |
|
|
|
options |
|
|
price |
|
|
expiration |
|
|
options(1) |
|
|
vested |
|
|
have not vested |
|
Name |
|
(#) |
|
|
($) |
|
|
date |
|
|
($) |
|
|
(#) |
|
|
($) |
|
|
|
|
|
5,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
7,450 |
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
1.84 |
|
|
|
2019.03.28 |
|
|
|
14,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jean-Denis Talon |
|
|
5,000 |
|
|
|
11.80 |
|
|
|
2011.05.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
10.55 |
|
|
|
2012.05.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
5.40 |
|
|
|
2013.05.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
3.68 |
|
|
|
2014.05.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.75 |
|
|
|
2015.05.06 |
|
|
|
7,700 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.86 |
|
|
|
2016.03.30 |
|
|
|
7,150 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
8.29 |
|
|
|
2017.03.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
1.80 |
|
|
|
2018.12.18 |
|
|
|
7,450 |
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
1.84 |
|
|
|
2019.03.28 |
|
|
|
14,500 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value of unexercised in-the-money options at financial year end is the difference
between the closing price of the Common Shares on November 30, 2009 ($3.29) on the TSX and the
respective exercise prices of the options. |
Incentive Plan Awards Value vested or earned during the year
The table below shows the value vested or earned during the year under each incentive plan as at
November 30, 2009 for each of the directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity incentive |
|
|
|
Option-based awards |
|
|
Share-based awards |
|
|
plan compensation |
|
|
|
Value vested during |
|
|
Value vested |
|
|
Value earned |
|
|
|
the year(1) |
|
|
during the year |
|
|
during the year |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
Gilles Cloutier |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A. Jean de Grandpré |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Goyer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gérald A. Lacoste |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Pommier |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard Reculeau |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jean-Denis Talon |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The value is determined by assuming that the options vested during the financial year
would have been exercised on the vesting date. The value corresponds to the difference between
the closing price of the Common Shares on the TSX on the vesting date and the exercise price
of the options on that date. Options granted to directors as part of the March 2009 Grant
vested on their date of grant which was a day where the TSX was closed for business. No value
was recorded for those options since their exercise price was equal to the closing price of
the Common Shares on the day preceding the date of grant of the options. |
|
|
|
Statement of Executive Compensation
|
|
Page 30 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
D. Other Information
Indebtedness of Directors
As at the date of the Circular, none of the directors of the Company and proposed nominee for
election as a director of the Company is indebted to the Company. During the financial year ended
on November 30, 2009, none of the directors of the Company was indebted to the Company.
Liability Insurance of Directors and Officers
The Company purchases liability insurance for its directors and officers in the performance of
their duties. These insurance policies also cover the directors and officers of the Companys
subsidiaries. During the fiscal year ended November 30, 2009, the policies provided maximum
coverage of $20,000,000 per claim, subject to a $200,000 deductible per occurrence. Premiums paid
by the Company for the policies amounted to $109,000. The policies and the premiums do not
distinguish between the insurance for the directors liability and officers liability, the
coverage being the same for both groups.
|
|
|
Statement of Executive Compensation
|
|
Page 31 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
ITEM III. CORPORATE GOVERNANCE DISCLOSURE
The Board of Directors of the Company considers good corporate governance to be important to the
effective operations of the Company and to ensure that the Company is managed so as to optimize
shareholder value. The Nominating and Corporate Governance Committee is responsible for examining
the Companys needs in this regard and addressing all issues that may arise from its practices.
This Committee ensures that the Companys corporate governance practices comply with Regulation
58-101 respecting Disclosure of Corporate Governance Practices (Québec) and oversees their
disclosure according to guidelines described in Policy Statement 58-201 to Corporate Governance
Guidelines (Québec) (hereinafter collectively referred to as the Regulation).
1. Board of Directors
A. Independence
A majority of the Companys directors are independent. Seven of the nine Board members meet the
criteria for independence defined by the Regulation, as none of them have a direct or indirect
material relationship with the Company.
|
|
|
|
|
Name |
|
Independence |
|
Material Relationship |
Gilles Cloutier
|
|
Yes
|
|
None |
A. Jean de Grandpré
|
|
Yes
|
|
None |
Robert Goyer
|
|
Yes
|
|
None |
Gérald A. Lacoste
|
|
Yes
|
|
None |
Paul Pommier
|
|
Yes
|
|
None |
Bernard Reculeau
|
|
Yes
|
|
None |
Jean-Denis Talon
|
|
Yes
|
|
None |
Luc Tanguay
|
|
No
|
|
Company Management |
Yves Rosconi
|
|
No
|
|
Company Management |
The Chairman of the Board of the Company is Paul Pommier, an independent director within the
meaning of the Regulation.
B. Meetings of the Board
The table below details the directors attendances to the Board of Directors meetings held in the
fiscal year ended on November 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Number of Meetings |
|
Attendance |
|
Absence |
Gilles Cloutier
|
|
|
7 |
|
|
|
7 |
|
|
|
0 |
|
A. Jean de Grandpré
|
|
|
7 |
|
|
|
7 |
|
|
|
0 |
|
Robert Goyer
|
|
|
7 |
|
|
|
7 |
|
|
|
0 |
|
Gérald A. Lacoste
|
|
|
7 |
|
|
|
7 |
|
|
|
0 |
|
Paul Pommier
|
|
|
7 |
|
|
|
7 |
|
|
|
0 |
|
Bernard Reculeau
|
|
|
7 |
|
|
|
7 |
|
|
|
0 |
|
Jean-Denis Talon
|
|
|
7 |
|
|
|
7 |
|
|
|
0 |
|
Luc Tanguay
|
|
|
7 |
|
|
|
7 |
|
|
|
0 |
|
Yves Rosconi
|
|
|
7 |
|
|
|
7 |
|
|
|
0 |
|
|
|
|
|
|
|
Corporate Governance Disclosure
|
|
Page 32 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
A meeting of independent directors, at which non-independent directors and members of
management are not in attendance, is planned as the last item of each Board meeting. Accordingly,
at the conclusion of each Board meeting, the Chairman determines, along with the other independent
directors, the relevance of meeting without non-independent directors and members of management.
During the fiscal year ended November 30, 2009, independent directors held no meeting without
non-independent directors and members of management.
C. Other Board Memberships
As detailed in the following table, only one of the Companys directors is a board member of an
other reporting issuer.
|
|
|
Name |
|
Reporting Issuer |
Luc Tanguay
|
|
Ambrilia Biopharma Inc. |
2. Mandate of the Board of Directors
The Board of Directors adopted the written mandate attached hereto as Appendix C which defines its
role and duties.
Consistent with its mandate of identifying key business risks facing the Company and implementing
systems to manage those risks, during the last financial year, the Board of Directors undertook to
review the various risks faced by the Company. To that end, the Board of Directors delegated to the
Audit Committee the responsibility of supervising the management team involved in this process. The
process is two-pronged: first, it consists in identifying the most important risks and, second, it
consists in reviewing and testing the measures in place to manage the identified risks or,
alternatively, create measures if none is in place. During the last financial year, the first part
of the review process was completed and, in the current financial year, the measures in place will
be tested and, if need be, improved or created.
3. Position Descriptions
The Board of Directors has developed written position descriptions for the Chairman of the Board
and the Chairs of the Boards Committees. A position description was also developed for the
President and Chief Executive Officer.
4. Orientation and Continuing Education
The Orientation and Continuing Education Policy for newly appointed directors is attached hereto as
Appendix D.
In the last financial year, the members of the Audit Committee attended a seminar organized by the
Companys auditors, KPMG LLP, on the upcoming IFRS accounting rules. In addition, throughout the
last financial year, the Company provided its directors with reading material covering topics in
various fields, including biotechnology, corporate governance and executive compensation.
In the current financial year, directors will be invited to attend a seminar on Bill 63, the
Business Corporations Act (Québec), the new act intended to replace the Companies Act (Québec).
|
|
|
|
|
|
Corporate Governance Disclosure
|
|
Page 33 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
5. Ethical Business Conduct
The Board of Directors has not adopted a written ethical business code of conduct for the Companys
directors, executive officers and employees. However, it has a series of internal policies
substantially covering the same issues as those found in a business code of conduct
(confidentiality, harassment and whistleblowing). In addition, it encourages and promotes ethical
business conduct that upholds integrity and fault prevention.
In the event a director or an executive officer has a material interest in any transaction or
agreement, the matter may initially be reviewed by the Nominating and Corporate Governance
Committee to determine the scope of the interest and its impact on managements decision-making.
The Committee will report its findings to the Board of Directors, which will take appropriate
action to ensure independent exercise of judgement. In the event a director has a material
interest in any transaction or agreement, such director must disclose, without delay, this conflict
of interest and follow the rules provided by the General By-Laws of the Company.
6. Nomination of Directors
The Nominating and Corporate Governance Committee is responsible for proposing new candidates for
Board nominations. This Committee is exclusively composed of independent directors. A copy of the
Committees Charter is attached hereto as Appendix E.
7. Compensation
A. Independence
The Compensation Committee is responsible for examining matters relating to compensation of
directors and executive officers on behalf of the Board of Directors. The Compensation Committee is
comprised exclusively of independent directors. A detailed description of the procedure used by the
Compensation Committee to establish compensation is provided under Item II of the Circular.
B. Meetings of the Compensation Committee
The table below details members attendance to the Compensation Committees meetings held in the
financial year ended November 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Number of Meetings |
|
Attendance |
|
Absence |
A. Jean de Grandpré
|
|
|
2 |
|
|
|
2 |
|
|
|
0 |
|
Paul Pommier
|
|
|
2 |
|
|
|
2 |
|
|
|
0 |
|
Bernard Reculeau
|
|
|
2 |
|
|
|
2 |
|
|
|
0 |
|
Jean-Denis Talon
|
|
|
2 |
|
|
|
2 |
|
|
|
0 |
|
At each meeting of the Compensation Committee, its members meet without members of management.
8. Audit Committee
A. Independence
The Company has an audit committee comprised of three independent directors, namely Paul Pommier,
who is the Chair, Gérald A. Lacoste and Jean-Denis Talon. Reference is made to section 4.2 of the
Companys annual information form dated February 23, 2010 for a description of the Audit Committee.
|
|
|
|
|
|
Corporate Governance Disclosure
|
|
Page 34 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
Each member of the Audit Committee has acquired in-depth financial expertise giving each the
ability to read and understand a set of financial statements which presents the breadth and level
of complexity of accounting issues that are generally comparable to those that can reasonably be
expected to be raised in the Companys financial statements.
B. Meetings of the Audit Committee
The table below details members attendance to the Audit Committees meetings held in the financial
year ended on November 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Number of Meetings |
|
Attendance |
|
Absence |
Gérald A. Lacoste
|
|
|
5 |
|
|
|
5 |
|
|
|
0 |
|
Paul Pommier
|
|
|
5 |
|
|
|
5 |
|
|
|
0 |
|
Jean-Denis Talon
|
|
|
5 |
|
|
|
5 |
|
|
|
0 |
|
A meeting of the members, at which members of management are not in attendance, is planned as
the last item of each Audit Committee meeting when members of management are asked to attend Audit
Committee meetings. Accordingly, at the conclusion of each Audit Committee meeting, the Chairman
determines, along with the members, the relevance of meeting without members of management. During
the last financial year ended November 30, 2009, members held one (1) meeting without members of
management.
9. Other Committees
A. Financing Committee
In addition to the Audit Committee, the Nominating and Corporate Governance Committee and the
Compensation Committee, the Board of Directors created a Financing Committee composed of two
independent directors and two directors who are executive officers of the Company. The Financing
Committees mandate is to study and analyze financing matters. No meeting of the Financing
Committee was held in the financial year ended November 30, 2009.
B. Strategic Committee
In August 2007, the Board of Directors created a Strategic Review Committee comprised of four (4)
independent directors, namely Paul Pommier, who is the Chair, Gilles Cloutier, A. Jean de Grandpré
and Gérald A. Lacoste. The mandate of the Strategic Review Committee consisted in reviewing
potential strategic alternatives to enhance shareholder value such as the entering into of a
co-promotion or a partnership agreement with regards to tesamorelin, the finding of a possible
partner, acquiror or target business with a view to complete a merger, a sale or an acquisition. As
a result of the announcement in October 2008 of the collaboration and licensing agreement entered
into between the Company and EMD Serono, Inc., the mandate of the Strategic Review Committee was
changed by the Board of Directors in December 2008 to assist executive officers and recommend to
the Board of Directors a business strategy to further the growth of the Company.
The Strategic Review Committee currently has the following role and responsibilities:
|
|
to evaluate and review the various business alternatives of the Company for
enhancing shareholder value (the Strategic Alternatives); |
|
|
|
to make recommendations to the Board of Directors with respect to the Strategic
Alternatives and to undertake a process it considers appropriate in order to
provide such recommendations; |
|
|
|
|
|
|
Corporate Governance Disclosure
|
|
Page 35 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
|
if one of the Strategic Alternatives is approved by the Board of Directors, to
maintain, on behalf of the Board of Directors, a review of its implementation; and
|
|
|
|
to perform any action deemed necessary or advisable to comply with its duties and
obligations under applicable laws. |
The table below details the members attendance to the Strategic Committees meetings held in the
financial year ended on November 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Number of Meetings |
|
Attendance |
|
Absence |
Gilles Cloutier
|
|
|
5 |
|
|
|
4 |
|
|
|
1 |
|
A. Jean de Grandpré
|
|
|
5 |
|
|
|
5 |
|
|
|
0 |
|
Gérald A. Lacoste
|
|
|
5 |
|
|
|
5 |
|
|
|
0 |
|
Paul Pommier
|
|
|
5 |
|
|
|
5 |
|
|
|
0 |
|
A meeting of the members, at which members of management are not in attendance, is planned as
the last item of each Strategic Committee meeting when members of management are asked to attend
Strategic Committee meetings. Accordingly, at the conclusion of each Strategic Committee meeting,
the Chairman determines, along with the members, the relevance of meeting without members of
management. During the last financial year ended November 30, 2009, members held two (2) meetings
without members of management.
10. Assessment
While there is no formal process for assessing directors on an ongoing basis, the directors are
free to discuss specific situations from time to time amongst themselves and/or with the Chairman
of the Board and, if deemed necessary, steps are taken to remedy a situation.
|
|
|
|
|
|
Corporate Governance Disclosure
|
|
Page 36 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
ITEM IV. OTHER INFORMATION
1. Additional Documentation
The Company is a reporting issuer in all Canadian provinces and is required to file its financial
statements and Circular with each Canadian Securities Commission. Each year, the Company also files
an Annual Information Form with such commissions. The financial information of the Company is
provided in the Companys comparative financial statements and Managements Discussion & Analysis
for its fiscal year ended November 30, 2009. Copies of the Companys financial statements,
management proxy circular and Annual Information Form may be obtained on request to the Secretary
of the Company at the following address: 2310 Alfred-Nobel Blvd, Montreal, Québec, H4S 2B4 or by
consulting the SEDAR Website at www.sedar.com. The Company may require the payment of a reasonable
fee if the request is made by someone other than a security holder of the Company, unless the
Company is in the course of a distribution of its securities pursuant to a short-form prospectus,
in which case these documents will be provided free of charge.
2. Approval by the Board Of Directors
The content and the sending of this Circular have been approved by the Board of Directors of the
Company on February 22, 2010.
Montreal, Québec, February 23, 2010.
|
|
|
|
|
|
Jocelyn Lafond
Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Governance Disclosure
|
|
Page 37 |
Management Proxy Circular
|
|
Theratechnologies Inc. |
APPENDIX A
RESOLUTION OF THE SHAREHOLDERS OF
THERATECHNOLOGIES INC. (THE COMPANY)
RESOLUTION 2010-1
SHAREHOLDER RIGHTS PLAN
BE IT RESOLVED:
1. |
|
That the shareholder rights plan adopted by the Board of Directors of the Company on February
10, 2010 be and is hereby approved; |
|
2. |
|
That any director or officer of the Company be and is hereby authorized to execute and
deliver such documents and instruments and to take such other actions as such director or
officer may deem necessary or advisable to give effect to this resolution in his entire
discretion, his determination being conclusively evidenced by the execution and delivery of
such documents or instruments and the taking of such actions. |
|
|
|
|
|
|
Appendix A Resolution 2010-1
|
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
APPENDIX B
COMPENSATION COMMITTEE CHARTER
I. Mandate
The Compensation Committee (the Committee) is responsible for assisting the Companys Board of
Directors (the Board) in overseeing the following:
|
A. |
|
compensation of Senior Management; |
|
B. |
|
assessment of Senior Management; |
|
C. |
|
compensation of Directors; |
|
E. |
|
overall increase in total compensation. |
II. Obligations and Duties
The Committee carries out the duties usually entrusted to a compensation committee and any other
duty assigned from time to time by the Board. Specifically, the Committee is charged with the
following obligations and duties:
|
A. |
|
Compensation of Senior Management |
|
1. |
|
Develop a compensation policy for the Companys Senior Management,
notably the Senior Management compensation structure, annual salary adjustments
as well as the creation and administration of short and long term incentive
plans, stock options, indirect advantages and benefits proposed by the
President and Chief Executive Officer. |
|
2. |
|
Review and establish all forms of compensation to Senior Management. |
|
3. |
|
Oversee, as required, employment contracts and terminations of Senior
Management, notably severance pay. |
|
4. |
|
Oversee the Companys annual report on Senior Management compensation
part of the Companys continuous disclosure requirements under applicable laws
and regulations. |
|
B. |
|
Assessment of Senior Management |
|
1. |
|
Develop a written position description for the President and Chief
Executive Officer. |
|
2. |
|
Establish general objectives annually for the President and Chief
Executive Officer of the Company and for other members of senior management. |
|
|
|
|
|
|
Appendix B Compensation Committee Charter
|
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
3. |
|
Examine and review annually the President and Chief Executive Officers
performance against specific performance criteria pre-established by the
Committee. |
|
4. |
|
Examine, in collaboration with the President and Chief Executive
Officer, the annual performance assessment of other senior managers. |
|
C. |
|
Compensation of Directors |
|
1. |
|
Recommend to the Board approval of the Directors Compensation Policy. |
|
2. |
|
Examine the compensation of Directors in relation to the risks and
duties of their position. |
|
1. |
|
Oversee, review as needed and recommend Board approval of the Company
Share Option Plan. |
|
2. |
|
The Committee may delegate, at its discretion, the plans
administration to members of the Companys Management and employees. |
|
3. |
|
Examine, oversee and recommend Board approval of stock option grants,
specifically: |
|
a. |
|
the people to whom options are granted; |
|
b. |
|
the number of options granted; |
|
c. |
|
the exercise price of the options; |
|
d. |
|
the exercise period of the options; and |
|
e. |
|
all other conditions relating to options granted. |
|
4. |
|
Overall Increase in Total Compensation |
|
|
|
|
Approve annually the Companys increase in overall compensation. |
III. External Advisors
In discharging its duties and responsibilities, the Committee is empowered to retain external legal
counsel or other external advisors, as appropriate. The Company shall provide the necessary funds
to secure the services of such advisors.
IV. Composition of the Committee
The Committee is composed of any number of Directors, but no less than three, as may be determined
by the Board from time to time by resolution. Each member of the Committee shall be independent
from the Company, as determined by the Board, in accordance with applicable laws, rules and
regulations.
|
|
|
|
|
|
Appendix B Compensation Committee Charter
|
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
V. Term of the Mandate
Committee members are appointed by Board resolution to carry out their mandate extending from the
date of the appointment to the next annual general meeting of shareholders, or until successors are
so appointed.
VI. Vacancy
The Board may fill vacancies at any time by resolution. Subject to the constitution of the quorum,
the Committees members can continue to act even if there is one or many vacancies on the
Committee.
VII. Chairman
The Board appoints the Committee Chairman who will call and chair the meetings.
VIII. Secretary
Unless decided otherwise by resolution of the Board, the Secretary of the Company shall act as
Committee Secretary. The Secretary must attend Committee meetings and prepare the minutes. He/she
must provide notification of meetings as directed by the Committee Chairman. The Secretary is the
guardian of the Committees records, books and archives.
IX. Meeting Proceedings
The Committee establishes its own procedures as to how meetings are called and conducted. Unless
it is otherwise decided, the Committee shall meet privately and independently from Management at
each regularly scheduled meeting. In the absence of the regularly appointed Chairman, the meeting
shall be chaired by another Committee member selected among attending participants and appointed
accordingly. In the absence of the regularly appointed Secretary, Committee members shall designate
someone to carry out this duty.
X. Quorum and Vote
Unless the Board otherwise specifies by resolution, two Committee members shall constitute an
appropriate quorum for deliberation of items on the agenda. During meetings, decisions are reached
by a majority of votes from Committee members, unless the quorum is of two members, in which case
decisions are made by consensus of opinion.
XI. Records
The Committee keeps records that are deemed necessary for its deliberations and reports to the
Board on its activities and recommendations on a regular basis.
XII. Effective Date
This charter was adopted by the Directors at its May 3, 2004 Board meeting. It was amended by the
Directors during the February 8, 2006 Board meeting.
|
|
|
|
|
|
Appendix B Compensation Committee Charter
|
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
APPENDIX C
MANDATE OF THE BOARD OF DIRECTORS
I. Role
The Companys Board of Directors (the Board) is ultimately responsible for the stewardship of the
Company and executes its mandate directly or after considering recommendations from its related
committees and Management.
Management is responsible for the Companys day-to-day activities and is charged with realizing
strategic activities approved by the Board within the scope of its authorized business activities,
capitalization plan and company directives. Management must report regularly to the Board on
matters relating to short-term results and long-term development activities.
II. Obligations and Responsibilities
The Board carries out the functions, performs duties and assumes the responsibilities entrusted by
the laws and regulations. The Board may delegate some of its responsibilities to Board committees
and Management within the scope of the Companys General By-laws, the laws and the regulations.
Therefore, day-to-day management of the Companys activities is entrusted to Senior Management,
which reports directly to the Board. One of the key functions of the Board is to appoint the
senior management team.
The functions and duties of Board members include, without limitation, the following functions and
duties:
|
A. |
|
Appointment, assessment, succession planning of Senior Management |
|
1. |
|
Select and appoint the President and Chief Executive Officer of the
Company. |
|
|
2. |
|
Oversee the appointment of other members of Senior Management. |
|
|
3. |
|
Ensure that the Company has a succession plan for the President and
Chief Executive Officer. |
|
|
4. |
|
Monitor the performance of the President and Chief Executive Officer
and others Executive Officers, with respect to pre-established objectives. |
|
B. |
|
Compensation of Directors |
|
1. |
|
Establish the compensation of Directors. |
|
C. |
|
Strategic Direction and Planning |
|
1. |
|
Adopt the Companys strategic planning process. |
|
|
2. |
|
Approve the Companys strategic plan and review Senior Managements
performance in implementing the plan. |
|
|
|
|
|
|
Appendix C Mandate of the Board of Directors |
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
3. |
|
Review the strategic plan annually, taking into account opportunities
and risks, and monitoring the Companys performance against the plan. |
|
|
4. |
|
Review and approve the Companys annual plans towards financing the
strategic plan. |
|
|
5. |
|
Review and approve the Companys annual operating budget. |
|
|
6. |
|
Identify key business risks facing the Company and the implementation
of appropriate systems to manage these risks. |
|
|
7. |
|
Discuss with Management how the strategic environment is changing and
the key strategic issues. |
|
D. |
|
Corporate Behaviour and Governance |
|
1. |
|
Develop an approach to corporate governance, including the
determination of principles and guidelines for the Company. |
|
|
2. |
|
Obtain reasonable assurance of the integrity of the President and Chief
Executive Officer and other senior members of Management, and that they uphold
principles of integrity within the ranks of the Company. |
|
|
3. |
|
Oversee the implementation of a Company disclosure policies and
procedures. |
|
|
4. |
|
Monitor the integrity of the Companys internal controls and disclosure
systems. |
|
|
5. |
|
Be available to receive feedback from stakeholders, which must be
provided in writing, at the Companys head office, bearing the mention
Confidendial. |
|
1. |
|
Keep up-to-date with the regular programs and employees of the Company. |
|
|
2. |
|
Upon request, join a committee and actively participate at its
meetings. |
|
|
3. |
|
Be accessible, at least by telephone, to personnel and other Company
Directors, as required. |
|
|
4. |
|
Keep confidential information discussed during meetings. |
|
|
5. |
|
Attend regular and special Board meetings. |
|
|
6. |
|
Get to know other members of the Board and promote collegial
decision-making. |
III. External Advisors
In discharging its duties and responsibilities, the Board is empowered to retain external legal
counsel or other external advisors, as appropriate. The Company shall provide the necessary funds
to secure the services of such advisors.
|
|
|
|
|
|
Appendix C Mandate of the Board of Directors |
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
IV. Composition of the Board
The Board consists of such number of Directors as the Board may determine from time to time by
resolution. The Board must assure itself that it is composed of Directors that are sufficiently
familiar with the business of the Company, and the risks it faces, to ensure active and effective
participation in the deliberations of the Board. Directors should have diverse backgrounds and
personal characteristics and traits as well as competencies and expertise that add value to the
Company. Finally, a majority of the Directors must be independent for the purposes of National
Policy 58-201 Corporate Governance Guidelines.
V. Board Meeting Procedures
The Board follows the procedure established in the Companys General By-Laws.
VI. Records
The Companys Secretary keeps the records required by law and any other relevant document.
VII. Effective Date
This written mandate was adopted by the Directors at its February 8, 2006 Board meeting.
|
|
|
|
|
|
Appendix C Mandate of the Board of Directors |
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
APPENDIX D
DIRECTOR ORIENTATION AND CONTINUING EDUCATION POLICY
The Board must first ensure that every new nominee as Director possesses the necessary skill,
expertise, availability and knowledge to properly fulfil its mandate. Once a Director is
effectively elected, the Chairman of the Board, the President and Chief Executive Officer and
Secretary provide him with the specific information required for a well-informed contribution.
I. Purpose
The purpose of this Director Orientation and Continuing Education Policy (the Policy) is to set
forth the Companys process of orientation for newly appointed Company Directors to familiarize
them with the role of the Companys Board of Directors, its committees, its directors, and the
nature and operation of the Companys business activities. The Policy also indicates the elements
of continuing education of the Board of Directors to ensure the Company Directors maintain the
skill and knowledge necessary to fulfill their obligations as directors.
II. Orientation of New Directors
Newly appointed Directors first meet with the Chairman of the Board to discuss the functioning of
the Board of Directors. Then, they meet with the President and Chief Executive Officer to discuss
the nature and operation of the Companys business activities. As required, meetings may be set up
with other Senior Managers to further clarify some of the Companys business activities. Finally,
the Secretary provides new directors with the following documents:
|
A. |
|
Copies of Board meeting minutes and written resolutions since the beginning of
the fiscal year (which may include those of the preceding fiscal year, depending of the
date of appointment), including a copy of the minutes of the last annual meeting; |
|
|
B. |
|
A schedule of Board Meetings for the year; |
|
|
C. |
|
The disclosure policies et procedures and the Undertaking form (for
signature); |
|
|
D. |
|
The policy on insider trading in force at Theratechnologies (with mention to
register as an insider with the Canadian securities agency through SEDI.ca and to
prepare an initial insider report within ten (10) days following appointment); |
|
|
E. |
|
Theratechnologies Share Option Plan; |
|
|
F. |
|
The latest annual report and accompanying information on Theratechnologies
(fact sheet, latest press releases, latest annual information form and corporate
presentation); |
|
|
G. |
|
The Director Disclosure Form (to complete and return within afforded time); |
|
|
H. |
|
The General By-Laws, the Boards written mandate, the Audit Committee Charter,
Compensation Committee Charter, Nominating and Corporate Governance Charter; and |
|
|
I. |
|
The Directors and Senior Management coverage and compensation. |
|
|
|
|
|
|
Appendix D Director Orientation and Continuing Education Policy |
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
III. Continuing Education
The following actions are taken to ensure the continuing education of Directors:
|
A. |
|
Management provides Directors, from time to time, with pertinent articles and
books relating to the Companys business, its competitors, corporate governance and
regulatory issues; |
|
|
B. |
|
Key Company executives make regular presentations to the Board on business
activities; |
|
|
C. |
|
Certain consultants present to the Board on matters relevant to their role and
duties. Consultants such as insurance brokers presenting on risks faced by the Company
or consultants presenting a long-term strategy for the Company; |
|
|
D. |
|
The Secretary offers Directors continuing education in the form of
presentations on new legal and regulatory requirements that impact the Board. |
IV. Review
This Policy is reviewed and modified when the Board of Directors considers it necessary and
desirable.
|
|
|
|
|
|
Appendix D Director Orientation and Continuing Education Policy |
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
APPENDIX E
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE CHARTER
I. Mandate
The Nominating and Corporate Governance Committee (the Committee) is responsible for assisting
the Companys Board of Directors (the Board) in overseeing the following:
|
A. |
|
Recruit candidates for the Board; |
|
|
B. |
|
Review the size of the Board; |
|
|
C. |
|
Composition of the Board; |
|
|
D. |
|
Function of the Board; |
|
|
E. |
|
Orientation and education of Board members; and |
|
|
F. |
|
Governance. |
II. Obligations and Duties
The Committee carries out the duties usually entrusted to a Nominating and Corporate Governance
Committee and any other duty assigned from time to time by the Board. Specifically, the Committee
is charged with the following obligations and duties:
|
A. |
|
Recruit Candidates for the Board |
|
1. |
|
Identify potential candidates as members of the Companys Board of
Directors. In so doing, the Committee will consider: |
|
a. |
|
independence of candidates under the terms of National Policy
58-201 on corporate governance; |
|
|
b. |
|
the competencies, skills and personal characteristics sought in
candidates. The Committee will determine what it considers necessary by
assessing competencies, skills and personal characteristics of the
candidates in relation to: (1) those generally required by the Board;
(2) those already present in other Board members; and (3) those which
are a welcome addition; and |
|
|
c. |
|
the availability of candidates. |
|
2. |
|
All Board members may submit to the Committee potential candidates for
membership, and the Committee shall review such candidates in light of above
described competencies and skills desirable for the Board. |
|
|
3. |
|
The Committee shall proceed as follows for the recruitment of
candidates: |
|
|
|
|
|
|
Appendix E Nominating and Corporate Governance Committee Charter |
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
a. |
|
as it is determined by the Committee and the Board of Directors
that Board vacancies must be filled or new members are desirable, the
Chairman of the Board of Directors shall make contact with candidates
that have been identified by the Committee per the above described
criteria; |
|
|
b. |
|
upon a positive evaluation by the Chairman of the Board of
Directors and positive reaction from the candidate, at least two (2)
members of the Board shall meet with the candidate; and |
|
|
c. |
|
upon a positive evaluation by the two (2) Board members and the
continuing interest of the candidate, the Committee shall make a
recommendation to the Board of Directors, providing all pertinent
background information for analysis and discussion by the Directors. |
|
B. |
|
Board Size |
|
|
|
|
The Board must be composed of 3 to 20 directors, as per the Companys articles of
incorporation and by law. As provided under the terms of the Company General
By-Laws, the Board shall exercise its power to establish by resolution the exact
number of directors. In this regard, the duties of the Committee are as follows: |
|
1. |
|
Examine the size of the Board annually in view of assessing its
effectiveness. |
|
|
2. |
|
Consider modifications to the number of constituting members and issue
its recommendations to the Board. |
|
C. |
|
Composition of the Board |
|
1. |
|
Ensure that the Board is composed of Directors that are sufficiently
familiar with the business of the Company, and the risks it faces, to ensure
active and effective participation in the deliberations of the Board. |
|
|
2. |
|
Ensure that Directors have diverse backgrounds and personal
characteristics and traits as well as competencies and expertise that add value
to the Company. |
|
|
3. |
|
Ensure that a majority of the directors are independent directors for
the purposes of National Policy 58-201 Corporate Governance Guidelines. |
|
1. |
|
Examine the Boards functions and issue recommendations as to its
obligations and role. Among others, the Committee must regularly review the
Boards written mandate. |
|
|
2. |
|
Determine and review, as needed, the roles and mandates of Board
committees and issue recommendations. |
|
E. |
|
Orientation and Continuing Education of Board Members |
|
|
|
|
Develop an orientation and continuing education policy for Directors. |
|
|
|
|
|
|
Appendix E Nominating and Corporate Governance Committee Charter |
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
|
1. |
|
Follow corporate governance developments and, as required, advise the
Board of appropriate actions. |
|
|
2. |
|
Examine appropriate actions to promote ethical business conduct, issue
relevant recommendations to the Board and oversee their implementation. |
|
|
3. |
|
Examine conflict of interest issues that may be brought to the
attention of the Board and offer solutions. |
III. External Advisors
In discharging its duties and responsibilities, the Committee is empowered to retain external legal
counsel or other external advisors, as appropriate. The Company shall provide the necessary funds
to secure the services of such advisors.
IV. Composition of the Committee
The Committee is composed of any number of Directors, but no less than three, as may be determined
by the Board from time to time by resolution. Each member of the Committee shall be independent
from the Company, as determined by the Board in accordance with applicable laws, rules and
regulations.
V. Term of the Mandate
Committee members are appointed by Board resolution to carry out their mandate extending from the
date of the appointment to the next Annual General Meeting of Shareholders, or until successors are
so appointed.
VI. Vacancy
The Board may fill vacancies at any time by resolution. Subject to the constitution of the quorum,
the Committees members can continue to act even if there is one or many vacancies on the
Committee.
VII. Chairman
The Board appoints the Committee Chairman who will call and chair the meetings.
VIII. Secretary
Unless decided otherwise by resolution of the Board, the Secretary of the Company shall act as
Committee Secretary. The Secretary must attend Committee meetings and prepare the minutes. He
must provide notification of meetings as directed by the Committee Chairman. The Secretary is the
guardian of the Committees records, books and archives.
IX. Meeting Proceedings
The Committee establishes its own procedures as to how meetings are called and conducted. Unless it
is otherwise decided, the Committee shall meet privately and independently from Management at each
regularly scheduled meeting. In the absence of the regularly appointed Chairman, the meeting shall
be chaired by another Committee member selected among attending participants and appointed
accordingly.
|
|
|
|
|
|
Appendix E Nominating and Corporate Governance Committee Charter |
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
In the absence of the regularly appointed Secretary, Committee members shall designate someone to
carry out this duty.
X. Quorum and Vote
Unless the Board otherwise specifies by resolution, two Committee members shall constitute an
appropriate quorum for deliberation of items on the agenda. During meetings, decisions are reached
by a majority of votes from Committee members, unless the quorum is of two members, in which case
decisions are made by consensus of opinion.
XI. Records
The Committee keeps records that are deemed necessary for its deliberations and reports to the
Board on its activities and recommendations on a regular basis.
XII. Effective Date
This charter was adopted by the Directors during the February 8, 2006 Board meeting.
|
|
|
|
|
|
Appendix E Nominating and Corporate Governance Committee Charter |
|
|
Management Proxy Circular
|
|
Theratechnologies Inc. |
EX-4.5
Exhibit 4.5
MATERIAL CHANGE REPORT
Regulation 51-102 Respecting Continuous Disclosure Obligations
Form 51-102F3
1. |
|
NAME AND ADDRESS OF COMPANY: |
|
|
|
THERATECHNOLOGIES INC.
2310 Alfred-Nobel Boulevard
Montreal, Québec
Canada H4S 2B4 |
|
2. |
|
DATE OF MATERIAL CHANGE: |
|
|
|
December 6, 2010 |
|
3. |
|
NEWS RELEASE: |
|
|
|
A news release was issued concerning this material change on December 6, 2010 on
Marketwire. A copy of the news release is available at SEDAR website at www.sedar.com. |
|
4. |
|
SUMMARY OF MATERIAL CHANGE: |
|
|
|
On December 6, 2010, Theratechnologies Inc. (the Company) announced the execution of a
distribution and licensing agreement (the Agreement) with Sanofi-Aventis (Sanofi)
for the commercialization rights to EGRIFTATM (tesamorelin for injection) in
Latin America, Africa and the Middle East for the treatment of excess abdominal fat in
HIV-infected patients with lipodystrophy. |
|
5. |
|
FULL DESCRIPTION OF MATERIAL CHANGE: |
|
|
|
On December 6, 2010, the Company announced the execution of the Agreement with Sanofi
for the commercialization rights to EGRIFTATM (tesamorelin for injection) in
Latin America, Africa and the Middle East for the treatment of excess abdominal fat in
HIV-infected patients with lipodystrophy. |
|
|
|
Under the terms of the Agreement, the Company will be responsible to supply
EGRIFTATM to Sanofi. Sanofi will buy EGRIFTATM from the Company at
an undisclosed selling price. The Company has kept all future development rights to
EGRIFTATM and will be responsible for conducting additional research and
development for any additional programs. Sanofi will be responsible to conduct all
regulatory activities in the aforementioned territories in connection with
EGRIFTATM for the treatment of excess abdominal fat in HIV-infected patients
with lipodystrophy, including seeking the approval of EGRIFTATM in the
different countries. The Company granted Sanofi an option to commercialize
EGRIFTATM in the aforementioned territories for other uses. |
|
6. |
|
RELIANCE ON SUBSECTION 7.1(2) OF REGULATION 51-102: |
|
|
|
Not applicable. |
|
7. |
|
OMITTED INFORMATION: |
|
|
|
Not applicable. |
-2-
8. |
|
SENIOR OFFICER: |
|
|
|
For further information, contact Jocelyn Lafond, Vice President, Legal Affairs, and
Corporate Secretary of Theratechnologies Inc., at (514) 336-4804, ext. 288. |
|
9. |
|
DATE OF REPORT: |
|
|
|
December 16, 2010. |
EX-4.6
Exhibit 4.6
MATERIAL CHANGE REPORT
Regulation 51-102 Respecting Continuous Disclosure Obligations
Form 51-102F3
1. |
|
NAME AND ADDRESS OF COMPANY: |
|
|
|
THERATECHNOLOGIES INC.
2310 Alfred-Nobel Boulevard
Montreal, Québec
Canada H4S 2B4 |
|
2. |
|
DATE OF MATERIAL CHANGE:
February 3, 2011 |
|
3. |
|
NEWS RELEASE: |
|
|
|
A news release describing this material change was issued on February 3, 2011 on
Marketwire. A copy of the news release is available on the SEDAR website at
www.sedar.com. |
|
4. |
|
SUMMARY OF MATERIAL CHANGE: |
|
|
|
On February 3, 2011, Theratechnologies Inc. (the Company) announced the execution of a
distribution and licensing agreement (the Agreement) with Ferrer Internacional S.A.
(Ferrer) for the commercialization rights to tesamorelin in Europe, Russia, South Korea,
Taiwan and certain central Asian countries for the treatment of excess abdominal fat in
HIV-infected patients with lipodystrophy. |
|
5. |
|
FULL DESCRIPTION OF MATERIAL CHANGE: |
|
|
|
On February 3, 2011, the Company announced the execution of the Agreement with Ferrer for
the commercialization rights to tesamorelin in Europe, Russia, South Korea, Taiwan and
certain central Asian countries for the treatment of excess abdominal fat in HIV-infected
patients with lipodystrophy. |
|
|
|
Under the terms of the Agreement, Ferrer will be responsible for conducting all regulatory
and commercialization activities in connection with tesamorelin for the treatment of
excess abdominal fat in HIV-infected patients with lipodystrophy in the territories
subject to the Agreement. Theratechnologies will be responsible for the manufacture and
supply of tesamorelin to Ferrer. Ferrer will purchase tesamorelin at a transfer price
equal to the higher of a significant percentage of the net selling price and a
predetermined floor price. Theratechnologies has the option to co-promote tesamorelin for
the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the
territories. Theratechnologies has kept all development rights to tesamorelin for other
indications and will be responsible for conducting research and
|
-2-
|
|
development for any additional programs. Ferrer has the option to enter into a
codevelopment and commercialization agreement using tesamorelin relating to any such new
indications. The terms and conditions of such a co-development and commercialization
agreement will be negotiated based on any additional program chosen for development. |
|
6. |
|
RELIANCE ON SUBSECTION 7.1(2) OR (3) OF NATIONAL INSTRUMENT 51-102: |
|
|
|
Not applicable. |
|
7. |
|
OMITTED INFORMATION: |
|
|
|
Not applicable. |
|
8. |
|
EXECUTIVE OFFICER: |
|
|
|
For further information, contact Jocelyn Lafond, Vice President, Legal Affairs, and
Corporate Secretary of the Company at (514) 336-4804, ext. 288. |
|
9. |
|
DATE OF REPORT: |
|
|
|
February 10, 2011 |
EX-4.7
Exhibit 4.7
MATERIAL CHANGE REPORT
Regulation 51-102 Respecting Continuous Disclosure Obligations
Form 51-102F3
1. |
|
NAME AND ADDRESS OF COMPANY: |
|
|
|
THERATECHNOLOGIES INC.
2310 Alfred-Nobel Boulevard
Montreal, Québec
Canada H4S 2B4 |
|
2. |
|
DATE OF MATERIAL CHANGE: |
|
|
|
February 22, 2011 |
|
3. |
|
NEWS RELEASE: |
|
|
|
A news release describing this material change was issued on February 22, 2011 on
Marketwire. A copy of the news release is available on the SEDAR website at
www.sedar.com. |
|
4. |
|
SUMMARY OF MATERIAL CHANGE: |
|
|
|
On February 22, 2011, Theratechnologies Inc. (the Company) announced a new clinical
program for muscle wasting in Chronic Obstructive Pulmonary Disease (COPD) using the
Companys lead compound, tesamorelin, a human growth hormone
releasing factor (GRF) analogue. |
|
5. |
|
FULL DESCRIPTION OF MATERIAL CHANGE: |
|
|
|
On February 22, 2011, the Company announced a new clinical program for muscle wasting in
COPD using the Companys lead compound, tesamorelin, a GRF
analogue. |
|
|
|
Based on tesamorelins anabolic properties, the Company has chosen to pursue the
development of its lead compound in muscle wasting in patients with COPD as its second
indication. COPD is characterized by progressive airflow obstruction due to chronic
bronchitis or emphysema leading in certain cases to muscle wasting, a decrease of muscle
mass and deterioration in functionality. Previously, the Company completed a Phase 2 trial
in stable ambulatory COPD patients which demonstrated a statistically significant increase
in lean body mass. The Company intends to commence a second Phase 2 clinical study in the
second half of 2011 to test different dosages of tesamorelin with a new formulation. |
|
|
|
The Phase 2 clinical study will evaluate the use of tesamorelin in a randomized, placebo
controlled study with approximately 200 COPD patients, in Global Initiative for Chronic
Obstructive Lung Disease (GOLD) stage II and III, with muscle wasting. |
-2-
|
|
Patients will be randomized to receive either one of two different dosages of tesamorelin
or placebo each day for six months. Theratechnologies intends to randomize its first
patient in the second half of 2011. The primary endpoint will be an increase in lean body
mass. Other efficacy endpoints will be measured, such as a six-minute walking distance
test, exercise
endurance time, and quality of life (daily activities). Safety assessments will include
monitoring of adverse events and laboratory evaluations. If the Phase 2 study is
successful, two Phase 3 studies (one pivotal and one confirmatory) are to be conducted in
parallel. This clinical trial program is estimated to take approximately four years and
will use a new and more concentrated formulation of tesamorelin. The new formulation will
require a smaller volume of injection and is expected to be stable at room temperature. |
|
6. |
|
RELIANCE ON SUBSECTION 7.1(2) OR (3) OF NATIONAL INSTRUMENT 51-102: |
|
|
|
Not applicable. |
|
7. |
|
OMITTED INFORMATION: |
|
|
|
Not applicable. |
|
8. |
|
EXECUTIVE OFFICER: |
|
|
|
For further information, contact Jocelyn Lafond, Vice President, Legal Affairs, and
Corporate Secretary of the Company at (514) 336-4804, ext. 288. |
|
9. |
|
DATE OF REPORT: |
|
|
|
February 22, 2011 |
EX-5.1
Exhibit 5.1
Consent of Auditors
The Board of Directors
Theratechnologies Inc.
We consent to the use of our report dated February 8, 2011 with respect to the consolidated
statements of financial position of the Company as at November 30, 2010 and 2009 and December 1,
2008, and the consolidated statements of comprehensive income, changes in equity and cash flows for
the years ended November 30, 2010 and 2009 included and incorporated by reference in the
prospectus, which is part of the registration statement on Form F-10 and to the reference to our
firm under the headings Summary Consolidated Financial Data, Selected Consolidated Financial
Data and Interest of Experts in the prospectus, which is part of the registration statement on
Form F-10.
/s/ KPMG LLP
Chartered Accountants
Montreal, Canada
February 22, 2011
EX-5.2
Exhibit 5.2
[Letterhead of Fasken Martineau Dumoulin LLP]
February 22, 2011
Theratechnologies Inc.
2310 Alfred-Nobel Boulevard
Montréal, Québec, Canada
H4S 2B4
Re: Registration Statement on Form F-10 of Theratechnologies Inc.
Ladies and Gentlemen:
We hereby consent to the reference to our firm under the heading Legal Matters in the short
form base prospectus filed as part of this Registration Statement on Form F-10. By giving this consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder.
Yours truly,
/s/ Fasken Martineau Dumoulin LLP
EX-5.3
Exhibit 5.3
[Letterhead of Goodwin Procter LLP]
February 22, 2011
Theratechnologies Inc.
2310 Alfred-Nobel Boulevard
Montréal, Québec, Canada
H4S 2B4
Re: Registration Statement on Form F-10 of Theratechnologies Inc.
Ladies and Gentlemen:
We hereby consent to the reference to our firm under the heading Legal Matters in the short
form base prospectus filed as part of this Registration Statement on Form F-10. By giving this consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder.
Yours truly,
/s/ Goodwin Procter LLP