Mr. Paul Levesque reports

THERATECHNOLOGIES REPORTS FINANCIAL RESULTS FOR THE THIRD QUARTER AND NINE MONTHS OF FISCAL 2023 AND PROVIDES BUSINESS UPDATES

Theratechnologies Inc. has released business highlights and financial results for the third quarter and first nine months of fiscal year 2023, ended Aug. 31, 2023. All figures are in U.S. dollars unless otherwise stated.

"Theratechnologies reported quarterly revenue of $21-million, demonstrating a solid recovery as compared to the prior quarter. While new prescription growth continues on a strong path, we also crossed major milestones in the advancement of our pipeline and the life cycle management of our commercial products," said Paul Levesque, president and chief executive officer. "We are particularly pleased to report a strong cash balance and adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] of $2.2-million in the third quarter, which was promised at the beginning of the year and delivered ahead of schedule.

"We continue to execute on value creation in our pipeline. A PDUFA date for the F8 formulation, the next generation of EGRIFTA SV, is expected in the upcoming quarter and will position our commercial franchises for additional revenue growth potential. As such, we are laser-focused on improvements to the bottom line through the remainder of 2023 and into the new year," concluded Mr. Levesque.

Recent highlights and program updates

Filing of sBLA for the F8 formulation of tesamorelin

The company announced that it had filed a supplemental biologic licence application (sBLA) for the F8 formulation of tesamorelin with the United States Food and Drug Administration (FDA) on Sept. 25, 2023. The company expects to receive an acknowledgment letter of the sBLA application within 30 days, along with a Prescription Drug User Fee Act (PDUFA) goal date.

Subject to approval by the FDA, the company plans on commercializing the F8 formulation under the trade name EGRIFTA MDV.

Sudocetaxel zendusortide development pathway

On Aug. 31, 2023, Theratechnologies announced that all five of the U.S.-based clinical sites participating in the conduct of the phase 1 clinical trial of the company's lead investigational peptide drug conjugate, sudocetaxel zendusortide, were activated to screen, enroll and dose advanced ovarian cancer patients. A sixth site based in Canada is finalizing its start-up activity.

Amendments to the loan facility

On July 28, 2023, Theratechnologies announced that the company had entered into an agreement with certain funds and accounts for which Marathon Asset Management LP acts as investment manager to amend some of the terms and conditions of its credit agreement entered into in July, 2022, to lower the minimum liquidity the company must maintain at any time to $15-million (U.S.) from $20-million (U.S.).

The amendments provide, inter alia, that the company must hold this minimum amount of liquidity at all times up to and including Oct. 31, 2023, and must comply with all of the other terms and conditions of the credit agreement.

On Sept. 25, 2023, Theratechnologies announced that it entered into an agreement in principle with Marathon to further amend some of the terms and conditions of the loan facility. Subject to completion of the required legal documentation to the satisfaction of the company and Marathon, the proposed amendments would provide for (i) the removal of the obligation to maintain at all times liquidity in the amount of $30-million (U.S.) if the F8 formulation is not approved by the FDA by March 31, 2024; (ii) a decrease in the minimum liquidity requirements over time to a minimum of $15-million from $20-million based on targeted last 12-month adjusted EBITDA; (iii) moving to an adjusted EBITDA-based target from a quarterly revenue-based target beginning with the quarter ending Nov. 30, 2023; and (iv) a deletion from the loan facility of the prohibition for the company to have a going concern explanatory paragraph in the annual report of the independent registered public accounting firm of the company. In consideration of the proposed amendments, the company has agreed to (i) pay an amount equal to $600,000, or 100 basis points calculated on the financed debt as of this day ($60-million), over the term of the loan and added to the outstanding loan as payment in kind; and (ii) reprice the exercise price of the five million common share purchase warrants held by Marathon to $2.30. Following the share consolidation completed on July 31, 2023, the exercise of four Marathon warrants is required to purchase one common share of Theratechnologies, resulting in a maximum issuance of 1.25 million common shares.

Share consolidation

On July 31, 2023, Theratechnologies announced completion of the consolidation of the issued and outstanding common shares of the company's share capital on the basis of one postconsolidation share for every four preconsolidation shares issued and outstanding. No shareholder approval was required for the consolidation to come into effect. The company's common shares began trading on the Toronto Stock Exchange and the Nasdaq on a consolidated basis on July 31, 2023.

Any references to the number of common shares, public offering warrants, Marathon warrants, share options, weighted average number of common shares, basic and diluted loss per share, and the exercise prices of the public offering warrants, Marathon warrants and share options have been retrospectively adjusted and restated to reflect the effect of the consolidation, on a retrospective basis.

2023 revised revenue guidance

Theratechnologies is tightening its fiscal year 2023 revenue guidance range to between $82-million and $85-million, or growth of the commercial portfolio in the range of 3 per cent and 6 per cent, as compared with the 2022 fiscal year results.

Third quarter fiscal 2023 financial results

The financial results presented in this press release are taken from the company's management's discussion and analysis dated Sept. 25, 2023, and its unaudited consolidated financial statements as at Aug. 31, 2023, which have been prepared in accordance with international financial reporting standards as issued by the International Accounting Standards Board. The MD&A and the unaudited consolidated financial statements can be found on SEDAR+, on EDGAR and on Theratechnologies' website.

Revenue

For the three- and nine-month periods ended Aug. 31, 2023, consolidated revenue was $20,855,000 and $58,312,000, compared with $20,811,000 and $58,636,000 for the same periods ended Aug. 31, 2022, representing a year-over-year increase of 0.2 per cent for the third quarter and a decrease of 0.1 per cent for the first nine months of the fiscal year.

For the third quarter of fiscal 2023, net sales of EGRIFTA SV were $13,183,000 compared with $12,876,000 in the third quarter of fiscal 2022, representing an increase of 2.4 per cent year-over-year. Higher sales of EGRIFTA SV in the quarter were mostly the result of a higher selling price but were hampered by slightly higher rebates to government payers. Net sales for the nine-month period ended Aug. 31, 2023, which amounted to $36,747,000 compared with $35,966,000 in the same period in 2022, representing growth of 2.1 per cent, were mostly affected by the higher inventory drawdowns at the specialty pharmacy level in the second quarter of 2023, as explained in the company's second quarter financial disclosure.

Trogarzo net sales in the third quarter of fiscal 2023 amounted to $7,672,000 compared with $7,935,000 for the same quarter of 2022, representing a decrease of 3.3 per cent year-over-year. Lower sales of Trogarzo were a result of our decision to stop commercializing the product in the European territory, where the company recorded sales of $517,000 in the third quarter of 2022, as well as slightly lower unit sales in North America, which were offset by a higher selling price.

For the nine-month period ended Aug. 31, 2023, Trogarzo net sales were $21,565,000 compared with $22,640,000 in the same period in 2022. North American net sales of Trogarzo were essentially flat when excluding European net sales of $1,028,000 for the nine-month period ended Aug. 31, 2022.

Cost of sales

For the three- and nine-month periods ended Aug. 31, 2023, cost of sales decreased to $4,967,000 and $14,569,000 compared with $5,292,000 and $20.37-million for the same periods in fiscal 2022.

Cost of goods sold was $4,967,000 and $14,569,000 in the three- and nine-month periods of 2023 compared with $5,292,000 and $17,929,000 for the same periods in 2022. The decrease in cost of goods sold was mainly due to a higher proportion of EGRIFTA SV sales, which carry a lower cost of goods sold than Trogarzo. For the first nine months of 2023, lower cost of goods sold is mainly the result of a charge of $1,788,000, in 2022, arising from the non-production of scheduled batches of EGRIFTA SV that were cancelled due to the planned transition to the F8 formulation. No such charge was recorded in 2023. The higher proportion of net sales of EGRIFTA SV also had a positive impact on cost of goods sold in 2023, compared with 2022.

Cost of sales also included the amortization of the other asset of $2,441,000 for the nine-month period ended Aug. 31, 2022. As the other asset was fully amortized during fiscal 2022, amortization of the other asset in fiscal 2023 is nil.

Research and development expenses

R&D expenses in the three- and nine-month periods ended Aug. 31, 2023, amounted to $5,396,000 and $25,141,000 compared with $8,425,000 and $27,484,000 in the comparable periods of fiscal 2022.

R&D expenses decreased by 36 per cent in the third quarter of 2023 compared with the same period last year, mostly due to the lower spending on the company's oncology program, lower spending in Europe, as well as lower spending following the near-completion of our life cycle management projects for EGRIFTA SV and Trogarzo. For the first nine months of 2023, R&D spending decreased by 8.5 per cent, again mostly due to lower spending on the company's various programs. R&D expenses in the first and second quarters of 2023 were also negatively impacted by expenses of $3,749,000 related to sudocetaxel zendusortide material and expenses of $536,000 related to the production of bacteriostatic water for injection (BWFI). Excluding these expenses, R&D expenses are down significantly in the three- and nine-month periods of 2023 compared with last year, mostly as a result of lower spending on the company's oncology program. R&D expenses also include $508,000 in severance and other expenses related to the reorganization announced in July, 2023.

Selling expenses

Selling expenses decreased to $6,728,000 and $20,021,000 for the three- and nine-month periods ended Aug. 31, 2023, compared with $8,404,000 and $31,582,000 for the same periods last year. The decrease in selling expenses in the third quarter ended Aug. 31, 2023, is mainly related to higher expenses incurred in the same period of 2022 related to the setting up of the company's internal field force in the United States as well as severance costs incurred following its decision in 2022 to exit the European market for the commercialization of Trogarzo. The decrease in the nine-month period ended Aug. 31, 2023, is due in large part to a charge of $6,356,000 related to the accelerated amortization in Q2 2022 of the Trogarzo commercialization rights for the European territory following the company's decision to cease commercialization activities in that territory during that quarter, which also led to decreased overall spending in commercialization activities. In 2022, Theratechnologies also incurred one-time costs related to setting up its internal field force in the United States. Selling expenses also include $141,000 in severance and other expenses related to the reorganization announced in July, 2023.

The amortization of the intangible asset value for the EGRIFTA SV and Trogarzo commercialization rights is also included under selling expenses. As such, Theratechnologies recorded amortization expenses of $675,000 and $2,153,000 for the three- and nine-month periods ended Aug. 31, 2023, compared with $642,000 and $8,539,000, respectively, in 2022.

General and administrative expenses

General and administrative expenses in the three- and nine-month periods ended Aug. 31, 2023, amounted to $3.71-million and $11,878,000, respectively, compared with $4,209,000 and $13.4-million reported in the comparable periods of fiscal 2022. The decrease in general and administrative expenses is largely due to the company's decision to terminate the commercialization activities of Trogarzo in Europe during the second quarter of 2022. General and administrative expenses also include $70,000 in severance and other expenses related to the reorganization announced in July, 2023.

Net finance costs

Net finance costs for the three- and nine-month periods ended Aug. 31, 2023, were $674,000 and $7,557,000, respectively, compared with $1,879,000 and $4,808,000 for the comparable periods of 2022. Net finance costs in the third quarter of 2023 included interest of $2,244,000, consisting of interest on the convertible senior notes issued in June, 2018, of $128,000 and interest of $2,116,000 on the loan facility. Net finance costs in the nine-month period ended Aug. 31, 2023, included interest of $5,802,000, consisting of interest on the convertible senior notes issued in June, 2018, of $916,000 and interest on the loan facility of $4,986,000. Net finance costs were also impacted in the nine-month period ended Aug. 31, 2023, by the loss on debt modification of $2.65-million related to the issuance of the five million common share purchase warrants issued in connection to the amendments to the loan facility during the first quarter of 2023. This was offset by a net gain on financial instruments carried at fair value of $1,939,000 in the three-month period ended Aug. 31, 2023, and of $2,054,000 in the nine-month period ended Aug. 31, 2023.

Net finance costs for the three- and nine-month periods ended Aug. 31, 2023, also included accretion expense of $500,000 and $1,642,000, respectively, compared with $515,000 and $1,576,000 for the comparable periods in 2022.

Adjusted EBITDA

Adjusted EBITDA was $2.16-million for the third quarter of fiscal 2023 and $(7,872,000) for the nine-month period ended Aug. 31, 2023, compared with $(3,851,000) and $(19,649,000) for the same periods of 2022. Adjusted EBITDA in the first and second quarters of 2023 was negatively affected by expenses of $3,749,000 related to sudocetaxel zendusortide material and expenses of $536,000 related to the production of BWFI. No such expenses were recorded in the third quarter of 2023.

Net loss

Net loss for the three- and nine-month periods ended Aug. 31, 2023, amounted to $746,000 and $21,202,000, respectively, compared with $7,549,000 and $39,308,000, for the same periods in 2022.

Financial position, liquidity and capital resources

Going concern uncertainty

As part of the preparation of its interim financial statements, management is responsible for identifying any event or situation that may cast doubt on the company's ability to continue as a going concern. Substantial doubt regarding the company's ability to continue as a going concern exists if events or conditions, considered collectively, indicate that the company may be unable to honour its obligations as they fall due during a period of at least, but not limited to, 12 months from Aug. 31, 2023. If the company concludes that events or conditions cast substantial doubt on its ability to continue as a going concern, it must assess whether the plans developed to mitigate these events or conditions will remove any possible substantial doubt.

For the nine-month period ended Aug. 31, 2023, the company incurred a net loss of $21,202,000 (2022 -- $39,308,000) and had negative operating cash flows of $1,572,000 (2022 -- $9,491,000). On July 3, 2023, the company defaulted under the minimum liquidity covenant of the loan facility, resulting in the lender having the ability to demand immediate repayment of the debt and in making available to the lender the collateralized assets, which include substantially all cash, bonds and money market funds which are subject to control agreements. Accordingly, the loan facility has been classified as a current liability and, as a result, the company's total current liabilities exceeded total current assets at Aug. 31, 2023. On Sept. 21, 2023, the company obtained a waiver from the lender relating to the liquidity breach.

The company's loan facility is available in four tranches and contains various covenants, including minimum liquidity covenants whereby the company needs to maintain significant cash, cash equivalent and eligible short-term investments balances in specified accounts, which restricts the management of the company's liquidity. A liquidity breach also entitles the lender to halt the advance of additional tranches and may trigger an increase of 300 basis points of the interest rate on the outstanding loan balance. In July, 2023, the company and the lender amended the terms of the loan facility to reduce the minimum liquidity covenant for the period of July 10 to July 28, 2023, and entered into an additional amendment to the terms of the loan facility to provide for the minimum liquidity covenant to be $15-million from July 29, 2023, to Oct. 31, 2023. After such date, the minimum liquidity covenant will revert to $20-million; provided, however, that if the F8 formulation is not approved by the FDA by March 31, 2024, the minimum liquidity covenant will be set at $30-million. The loan facility also includes operational milestones and required revenue targets (which were amended during the second quarter) in order for the company to comply with the conditions of the loan facility and to borrow money forming part of the various tranches. Furthermore, the loan facility includes a covenant prohibiting having a going concern explanatory paragraph in the annual report of the independent registered public accounting firm but the lender amended the loan facility on Feb. 27, 2023, to exclude the fiscal year ended Nov. 30, 2022, from this prohibition. Notwithstanding the agreement in principle reached on Sept. 24, 2023, there is no assurance that the lender will agree to amend or to waive any future potential covenant breaches, if any.

The Company's ability to continue as a going concern for a period of at least, but not limited to, 12 months from Aug. 31, 2023, involves significant judgement and is dependent on its ability to obtain the support of the lender (including possible waivers and amendments), increase its revenues and the management of its expenses to generate sufficient positive operating cash flows, and to find alternative source of financing to respect the various covenants of its loan facility, including obtaining the approval from the FDA for its F8 formulation on or before March 31, 2024. Management's plans include current negotiations with its lender to obtain amendments to its loan facility, exploring additional alternative sources of financing, including raising additional equity, and to generate positive operating cash flows. Some elements of these plans are outside of management's control and the outcome cannot be predicted at this time. Should management's plans not materialize, the company may be in default of the loan facility, be forced to reduce or delay expenditures and capital additions, and seek additional alternative financing, or sell or liquidate its assets. As a result, there is material uncertainty related to events or conditions that cast substantial doubt about the company's ability to continue as a going concern.

The interim financial statements have been prepared assuming the company will continue as a going concern, which assumes the company will continue its operations in the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The interim financial statements do not include any adjustments to the carrying values and classification of assets and liabilities and reported expenses that might result from the outcome of this uncertainty and that may be necessary if the going concern basis was not appropriate for the interim financial statements. If the company was unable to continue as a going concern, material impairment of the carrying values of the company's assets, including intangible assets, could be required.

Analysis of cash flows

Theratechnologies ended the third quarter of fiscal 2023 with $22,874,000 in cash, bonds and money market funds. Available cash is invested in highly liquid fixed-income instruments including governmental and municipal bonds, and money market funds. The company currently is required to maintain $15-million in cash, bonds and money market funds up to and including Oct. 31, 2023, and, thereafter, $20-million, to respect its minimum liquidity covenant.

The company voluntarily changed its accounting policy in fiscal 2022 to classify interest paid and received as part of cash flows from operating activities, which were previously classified as cash flow from financing activities and interest received as cash flows from investing activities. The fiscal 2022 amounts presented herein have been recast to reflect the change in policy.

For the three-month period ended Aug. 31, 2023, cash flows from operating activities were $5,329,000, compared with ($1,572,000) in the comparable period of fiscal 2022.

In the third quarter of fiscal 2023, changes in operating assets and liabilities had a positive impact on cash flow from operations of $5,329,000 (2022 --negative impact of $2,757,000). These changes included positive impacts from a decrease in inventories ($2,439,000), lower trade and other receivables ($4,445,000), lower prepaid expenses and deposits ($958,000), and included a negative impact from accounts payable ($2,947,000). The decrease in inventories was mainly due to a planned reduction of Trogarzo inventory levels. Higher provisions also had a positive impact on cash flow of $1,687,000.

During the third quarter of fiscal 2023, the company received net proceeds of $19.7-million from the drawdown of the second tranche under the loan facility. On June 30, 2023, Theratechnologies redeemed the remaining $27,452,000 of convertible senior notes. As at Aug. 31, 2023, no convertible senior notes remained outstanding. During the third quarter of fiscal 2022, the company realized net proceeds from the issuance of a long-term loan of $37,715,000. Significant uses of cash for financing activities during fiscal 2022 included the purchase of convertible senior notes for $28,746,000 (including costs related to the purchase), and $1,225,000 in deferred financing costs related to the establishment of the loan facility. There were no other significant financing activities or investing activities in the three and nine months ended Aug. 31, 2023, and 2022.

Conference call details

The conference call will be held at 8:30 a.m. (ET) on Sept. 26, 2023, to discuss the results and recent business updates. The call will be hosted by Mr. Levesque, president and chief executive officer. Joining Mr. Levesque on the call will be other members of the management team, including senior vice-president and chief financial officer Philippe Dubuc, senior vice-president and chief medical officer Dr. Christian Marsolais, and global commercial officer John Leasure who will be available to answer questions from participants following prepared remarks.

Participants are encouraged to join the call at least 10 minutes in advance to secure access.

Conference call dial-in and replay information is below:

Conference call information

Conference call date: Sept. 26, 2023

Conference call time: 8:30 a.m. EDT

Dial-in: 1-888-317-6003 (toll-free) or 1-412-317-6061 (international)

Access code: 9250897

An archived webcast will also be available on the company's investor relations website under past events.

About Theratechnologies Inc.

Theratechnologies is a biopharmaceutical company focused on the development and commercialization of innovative therapies addressing unmet medical needs.

We seek Safe Harbor.