Mr. Paul Levesque reports

THERATECHNOLOGIES REPORTS FINANCIAL RESULTS FOR THE FOURTH QUARTER AND FULL YEAR OF FISCAL 2023 AND PROVIDES 2024 GUIDANCE

Theratechnologies Inc. has released business highlights and financial results for the fourth quarter and full year of fiscal year 2023, ended Nov. 30, 2023. All figures are in U.S. dollars unless otherwise stated.

"Fourth quarter of 2023 marked the highest quarterly revenue ever recorded in the history of Theratechnologies, delivering $23.5-million in revenue and ending 2023 with total annual revenue of $81.8-million," said Paul Levesque, president and chief executive officer. "This is a significant accomplishment considering the hurdles we faced in the first half of 2023 with inventory drawdowns and unfavourable gross-to-net challenges. Equally, we demonstrated strength on the bottom line, realizing a positive adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] for the quarter of $5-million, more than doubling the third quarter result. We ended the year with a significant turnaround in adjusted EBITDA of only $(2.9-million), an improvement of more than $19-million over 2022. Our efforts to be stringent with operating expenses while focusing on top-line growth have been recognized in the marketplace, as exemplified by the recent financing that strengthened our balance sheet with new high-quality institutional investors such as Investissement Quebec."

Mr. Levesque added: "EGRIFTA SV remains the standout product in our portfolio with the total number of unique patients hitting an all-time high at the end of calendar 2023, up 13 per cent year-over-year for the month of December. Despite facing new market entrants, Trogarzo remains a good companion to EGRIFTA SV and a vital treatment for people with HIV who have few options. While we were disappointed to receive a complete response letter from the FDA on Jan. 23, 2024, for our sBLA for the F8 formulation of tesamorelin, we are confident in this product and are actively addressing the agency's concerns so that we can resubmit the file and continue with our plan to obtain approval before the end of 2024. To this end, we have been working closely with external regulatory experts and have requested a Type A meeting with the FDA.

"By doubling down on our commercial capabilities, we are determined to create value for our shareholders and continue generating positive adjusted EBITDA in 2024 through organic and inorganic opportunities," Mr. Levesque continued. "We are also encouraged by the continued interest in our oncology program and are pleased to have completed enrolment of the first six patients in the updated phase 1 clinical trial investigating sudocetaxel zendusortide in advanced ovarian cancer. In parallel, we are advancing preclinical research of new peptide-drug conjugates with other potent payloads, demonstrating that our SORT1+ Technology platform provides strong possibilities for combining our PDCs with targeted therapies, as well as the potential for conjugating our peptides with other anti-cancer treatment modalities."

2024 revenue and adjusted EBITDA guidance

Based on the company's performance over the last six months, Theratechnologies is guiding to $87-million to $90-million in annual revenue and an adjusted EBITDA in the range of $13-million to $15-million for the full year 2024.

Fourth quarter fiscal 2023 financial results

Revenue

Consolidated revenue for the three months ended Nov. 30, 2023, amounted to $23,452,000 compared with $21,421,000 for the same period last year, representing an increase of 9.5 per cent.

For the fourth quarter of fiscal 2023, sales of EGRIFTA SV reached $16,958,000 compared with $14,458,000 in the fourth quarter of the prior year, representing an increase of 17.3 per cent. Strong sales of EGRIFTA SV were mostly the result of increased unit sales, and somewhat offset by higher rebates to government payers than in fiscal 2022. In the fourth quarter of fiscal 2023, Trogarzo sales amounted to $6,494,000 compared with $6,963,000 for the same quarter of fiscal 2022, representing a decrease of 6.7 per cent. The decrease was mainly due to lower unit sales in the quarter as compared with last year. Lower unit sales in the fourth quarter of fiscal 2023 were also a result of higher inventory buildup in fiscal 2022, a situation which has resolved itself in fiscal 2023.

Cost of sales

For the three-month period ended Nov. 30, 2023, cost of sales was $5,066,000 compared with $5,909,000 in the comparable period of fiscal 2022. Lower cost of sales for 2023 is explained by a provision in cost of goods sold for the fourth quarter of fiscal 2022 which included a provision of $1,477,000 related to the writedown of F8 formulation for precommercial material which could expire prior to the launch of the F8 formulation. This decrease was partially offset by an increase from higher sales of EGRIFTA SV and various production-related costs.

Research and development expenses

R&D expenses in the three-month period ended Nov. 30, 2023, amounted to $5,229,000 compared with $9,455,000 in the comparable period of fiscal 2022. The decrease during the fourth quarter of fiscal 2023 was largely due to lower spending across all areas, including the phase 1 clinical trial for sudocetaxel zendusortide, the human factor study (HFS) for the F8 formulation as well as the development of the intramuscular (IM) method of administration of Trogarzo. These last two projects were mostly completed in the fourth quarter of fiscal 2023. R&D expenses also included $876,000 in severance and other expenses related to the reorganization announced in July, 2023.

Selling expenses

Selling expenses in the three-month period ended Nov. 30, 2023, amounted to $6,748,000 compared with $7,809,000 in the comparable period of fiscal 2022. The decrease in selling expenses is largely associated to the careful management of expenses to achieve the company's stated goal of achieving a positive adjusted EBITDA toward the end of fiscal 2023. Selling expenses also included $79,000 in severance and other expenses related to the reorganization announced in July, 2023.

General and administrative expenses

General and administrative expenses in the fourth quarter of fiscal 2023 amounted to $3,739,000, compared with $3,956,000 reported in the same period of fiscal 2022. General and administrative expenses include $289,000 in severance and other expenses related to the reorganization announced in July, 2023.

Net finance costs

Net finance costs for the three-month period ended Nov. 30, 2023, were $5,352,000 compared with $2,078,000 in the same period last year. The increase in net finance costs is due to the higher balance outstanding under the Marathon credit agreement, which carries a higher interest than the convertible notes then outstanding in 2022. Net finance costs in the fourth quarter of fiscal 2022 included interest on the convertible notes, whereas this amount was nil in the fourth quarter of fiscal 2023. The higher interest is also a function of higher interest rates in 2023 versus 2022. Other increases in the fourth quarter of fiscal 2023 are related to the costs associated with the amendment to the loan facility ($890,000), the write-off of deferred financing costs ($954,000) and the change in fair value of the Marathon warrants ($825,000).

Adjusted EBITDA

Adjusted EBITDA, a non-GAAP (generally accepted accounting principles) measure, was $4,965,000 for the fourth quarter of fiscal 2023, compared with $(2,439,000) for the same period of fiscal 2022.

Net loss

Taking into account the revenue and expense variations described above, the company recorded a net loss of $2,755,000, or eight cents per share, in the fourth quarter of fiscal 2023 compared with a net loss of $7,929,000, or nine cents per share, in the fourth quarter of fiscal 2022.

Fiscal Year 2023 financial results compared with fiscal year 2022 financial results

Revenue

Consolidated revenue for fiscal 2023 was $81,764,000 compared with $80,057,000 for the same period last year, representing an increase of 2.1 per cent.

For fiscal 2023, sales of EGRIFTA SV reached $53,705,000 compared with $50,454,000 for the same period last year, representing growth of 6.4 per cent. The increase in net sales of EGRIFTA SV was mostly the result of a higher number of units sold compared with the previous year, as well as a higher net selling price. Overall growth of EGRIFTA SV net sales was hampered in 2023 by drawdowns in inventory at one of the company's large specialty pharmacies during the second quarter.

In fiscal 2023, Trogarzo net sales were $28,059,000 compared with $29,603,000 in the prior year, a decrease of 5.2 per cent. Net sales of Trogarzo were negatively affected in the second quarter of 2023 by two factors: (a) drawdowns in inventory at one of the company;s large specialty pharmacies resulting from larger-than-necessary purchases in the latter part of calendar year 2022; and (b) further inventory drawdowns at another specialty pharmacy with which the company renegotiated contract terms resulting in a lowering of its overall inventory levels. Net sales of Trogarzo were also impacted by greater-than-anticipated rebates to government payers. The Trogarzo net sales decrease is also attributable to a lesser degree to the company's decision to stop commercializing the product in Europe in fiscal 2022, resulting in a $975,000 decrease in fiscal 2023.

Cost of sales

For fiscal 2023, cost of sales was $19,635,000 compared with $26,279,000 in the comparable period of fiscal 2022. Cost of sales included cost of goods sold that amounted to $19,635,000 in fiscal 2023 compared with $23,838,000 in fiscal 2022. The decrease in cost of goods sold was mainly due to a number of factors occurring in fiscal 2022 that did not reoccur in fiscal 2023, namely: (1) a charge arising from the non-production of scheduled batches of EGRIFTA SV that were cancelled due to the planned transition to the F8 formulation in the amount of $1,788,000; and (2) a provision of $1,477,000 related to the writedown of F8 formulation for precommercial material which could expire prior to the launch of the F8 formulation, if approved. Cost of goods sold for fiscal 2023 also included other provisions totalling $220,000, related to the pending approval of the F8 formulation.

In fiscal 2022, cost of sales included an amortization charge of $2,441,000 in connection with the settlement of the future royalty obligation which has been accounted as other asset on the consolidated statement of the financial position. The other asset was fully amortized during the first half of fiscal 2022, and thus this charge was nil in fiscal 2023.

R&D expenses

R&D expenses were $30.37-million for fiscal 2023 compared with $36,939,000 for fiscal 2022, a decrease of 17.8 per cent, mostly due to lower spending on the company's various programs. R&D expenses in the first and second quarters of fiscal 2023 were also negatively impacted by expenses of $3,73-million 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 fiscal 2023 compared with last year, mostly as a result of lower spending on the company's oncology program. R&D expenses also included $1,384,000 in severance and other expenses related to the reorganization announced in July, 2023.

Selling expenses

Selling expenses for fiscal 2023 were $26,769,000 compared with $39,391,000 for fiscal 2022. The decrease in selling expenses is mainly related to higher expenses incurred in fiscal 2022 related to the setting up of the company's internal field force in the United States as well as severance costs incurred following the decision in 2022 to exit the European market for the commercialization of Trogarzo. The decrease is also due in large part to a charge of $6,356,000 related to the accelerated amortization, in the second quarter of fiscal 2022, of the Trogarzo commercialization rights for the European territory. Selling expenses in fiscal 2023 included $220,000 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, the company recorded amortization expenses of $2,513,000 for fiscal 2023, compared with $9,211,000 in fiscal 2022 (which included the charge related to accelerated amortization of the Trogarzo commercialization rights for the European territory).

General and administrative expenses

General and administrative expenses for fiscal 2023 were $15,617,000 compared with $17,356,000 for the same period in 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 fiscal 2022. General and administrative expenses for fiscal 2023 also included $359,000 in severance and other expenses related to the reorganization announced in July, 2023.

Net finance costs

Net finance costs for fiscal 2023 were $12,909,000 compared with $6,886,000 in fiscal 2022. The increase in net finance costs in fiscal 2023 versus fiscal 2022 was mostly due to the higher interest expense on the company's loan facility ($3,906,000), as well as expenses of $3.54-million related to the amendments to the Marathon credit agreement. Other expenses in fiscal 2023 include the write-off deferred financing costs ($954,000). These higher costs are offset by gain on the change of fair value of the Marathon warrants and a lower foreign exchange loss.

Adjusted EBITDA

Adjusted EBITDA was $(2,907,000) for fiscal 2023 compared with $(22,088,000) for fiscal 2022. Adjusted EBITDA in the first and second quarters of fiscal 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 and fourth quarters of fiscal 2023.

Net loss

Taking into account the revenue and expense variations described above, the company recorded a net loss of $23,957,000, or 91 cents per share, in fiscal 2023 compared with $47,237,000, or $1.98 per share, in fiscal 2022.

Financial position, liquidity and capital resources going concern uncertainty

As part of the preparation of the audited 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 Nov. 30, 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 year ended Nov. 30, 2023, the company incurred a net loss of $23,957,000 (2022 -- $47,237,000; 2021 -- $31,725,000) and had negative cash flows from operating activities of $5,678,000 (2022 -- $14,692,000; 2021 -- $17,501,000). As at Nov. 30, 2023, cash amounted to $34,097,000 and bonds and money market funds amounted to $6.29-million.

The Marathon credit agreement 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 provides the lender with the ability to demand immediate repayment of the loan facility and makes available to the lender the collateralized assets, which include substantially all cash, bonds and money market funds which are subject to control agreements. It may trigger an increase of 300 basis points of the interest rate on the outstanding loan balance. On July 3, 2023, the company incurred a liquidity breach resulting in the lender having the ability to demand immediate repayment of the debt, which breach was waived on Sept. 21, 2023. During fiscal 2023, the company entered into several amendments to the Marathon credit agreement to amend certain of the terms and conditions therein.

The amendments to the Marathon credit agreement covenants resulted in: (i) revising the minimum liquidity requirements for all times following Oct. 31, 2023, to be between $15-million and $20-million, based on the Marathon adjusted EBITDA thresholds over the most recently ended four fiscal quarters; (ii) revising the minimum revenue requirements to be based on Marathon adjusted EBITDA targets instead of quarterly revenue-based targets, beginning with the quarter ending Nov. 30, 2023; and (iii) deleting the prohibition against the company having a going concern explanatory paragraph in the opinion of the independent registered public accounting firm of the company that accompanies the company's annual report. Notwithstanding the latest amendments, there is no assurance that the lender will agree to amend or to waive any future potential covenant breaches, if any. The company does not meet the condition precedents to draw down additional amounts under the Marathon credit agreement and does not currently have other committed sources of financing available to it.

The company's ability to continue as a going concern for a period of at least, but not limited to, 12 months from Nov. 30, 2023, involves significant judgement and is dependent on the adherence to the conditions of Marathon credit agreement or to obtain the support of the lender (including possible waivers and amendments), increase its revenues and the management of its expenses (including the reorganization mainly focused on its R&D activities) in order to generate sufficient positive operating cash flows. Some elements of management's 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 under the Marathon credit agreement, 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 audited 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 audited 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 audited 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

As at Nov. 30, 2023, cash, bonds and money market funds amounted to $40,387,000 compared with $33.070,000-million at Nov. 30, 2022. Available cash is invested in highly liquid fixed-income instruments, including governmental, municipal and paragovernmental organizations, high-grade corporate bonds, and money market funds. The company currently is required to maintain $20-million in cash, bonds and money market funds to respect its minimum liquidity covenant. The liquidity covenant can decrease to $17.5-million and again to $15-million should the company achieve the predetermined Marathon adjusted EBITDA thresholds (as set forth in the Marathon credit agreement).

The company voluntarily changed its accounting policy in fiscal 2022 to classify interest paid and received as part of operating activities, which were previously classified as cash flow from financing activities and interest received as cash flows from investing activities.

During fiscal 2023, cash flows used in operating activities were $5,678,000, compared with $14,692,000 in fiscal 2022.

In fiscal 2023, changes in operating assets and liabilities had a positive impact on cash flow from operations of $8,133,000 (2022 -- positive impact of $13,017,000). These changes included positive impacts from a decrease in inventories ($10,327,000), lower prepaid expenses and deposits ($4,511,000), and higher provisions ($1.92-million). Decreased accounts payable ($7,508,000) had a negative impact on cash flow, as did higher trade and other receivables ($902,000). The decrease in inventories was mainly due to a planned reduction of Trogarzo inventory levels.

During the fourth quarter of fiscal 2023, cash flows used in operating activities were $5,606,000. Changes in operating assets and liabilities had a negative impact on cash flow from operations of $6.91-million. These changes included negative impacts from an increase in trade and other receivables ($4,339,000) and prepaid expenses and deposits ($1,366,000) as well as a decrease in accounts payable and accrued liabilities ($2,108,000).

During fiscal 2023, the Company received net proceeds of $19.3-million from the drawdown of the second tranche under the Marathon credit agreement. On June 30, 2023, the company redeemed the remaining $27,452,000 of convertible notes. As at Nov. 30, 2023, no convertible notes remained outstanding.

During the fourth quarter of fiscal 2023, the company realized net proceeds of $23,575,000 from the issuance of common shares, and exchangeable subscription receipts from the 2023 public offering and concurrent private placement. This amount includes the proceeds from the exercise of the overallotment option, resulting in the issuance of 160,000 common shares.

The company does not meet the conditions precedent to draw down the third ($15-million) and fourth ($25-million) tranches of the loan facility. These will cease to be available to the company after March 31, 2024.

As stated above, the amendments to the Marathon credit agreement covenants resulted in: (i) revising the minimum liquidity requirements for all times following Oct. 31, 2023, to be between $15-million and $20-million, based on Marathon adjusted EBITDA thresholds over the most recently ended four fiscal quarters (or shorter period set forth in the Marathon credit agreement); and (ii) revising the minimum revenue requirements to be based on Marathon adjusted EBITDA targets instead of quarterly revenue-based targets, beginning with the quarter ending Nov. 30, 2023. While the company's current cash, bonds and money market funds amounted to $40,387,000, it continues to monitor these balances in order to continuously meet the minimum liquidity requirements as set out in the Marathon credit agreement. The company currently also meets the Marathon adjusted EBITDA, and its current operating plan projects that it will continue to meet these targets for the foreseeable future. The company plans to ensure continued compliance through close management of expenses and will adapt spending in the event of weakness in its revenues.

Conference call details

The conference call will be held at 8:30 a.m. (ET) on Feb, 21, 2024, to discuss the results and recent business updates. The call will be hosted by Mr. Levesque, president and chief executive officer. Joining Mr. Lévesque 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, PhD, 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 can be found below.

Conference call information

Conference call date: Feb. 21, 2024

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

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

Access code: 0664356

Conference call replay

Toll-free: 1-877-344-7529 (United States)/1-855-669-9658 (Canada)

International toll: 1-412-317-0088

Replay access code: 3842515

Replay end date: Feb. 28, 2024

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.