Theratechnologies(THTX) - 2022 Q2 - Quarterly Report

Interim Consolidated Financial Statements Interim Consolidated Statements of Financial Position As of May 31, 2022, Theratechnologies Inc. reported a significant decline in its financial position compared to November 30, 2021, with total assets decreasing from $119.2 million to $95.4 million and total liabilities rising from $101.5 million to $107.0 million, resulting in a shift from equity of $17.8 million to a deficiency of $11.6 million | Financial Position Highlights | May 31, 2022 ($'000) | November 30, 2021 ($'000) | Change ($'000) | | :--- | :--- | :--- | :--- | | Total Current Assets | 78,302 | 91,908 | (13,606) | | Total Non-current Assets | 17,057 | 27,304 | (10,247) | | Total Assets | 95,359 | 119,212 | (23,853) | | Total Current Liabilities | 49,923 | 45,076 | 4,847 | | Total Non-current Liabilities | 57,080 | 56,376 | 704 | | Total Liabilities | 107,003 | 101,452 | 5,551 | | Total (Deficiency) Equity | (11,644) | 17,760 | (29,404) | Interim Consolidated Statements of Comprehensive Loss For the six months ended May 31, 2022, revenue increased to $37.8 million from $33.2 million year-over-year, but a sharp rise in operating expenses, particularly selling expenses, led to a significantly wider loss from operating activities of $28.7 million and a net loss of $31.8 million, or ($0.33) per share | Income Statement Summary | Six-Months Ended May 31, 2022 ($'000) | Six-Months Ended May 31, 2021 ($'000) | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | 37,825 | 33,217 | +13.9% | | Cost of Sales | 15,078 | 11,345 | +32.9% | | R&D Expenses | 19,059 | 11,300 | +68.7% | | Selling Expenses | 23,178 | 13,059 | +77.5% | | Total Operating Expenses | 66,506 | 43,150 | +54.1% | | Loss from Operating Activities | (28,681) | (9,933) | +188.7% | | Net Loss | (31,759) | (12,314) | +157.9% | | Basic and Diluted Loss per Share | ($0.33) | ($0.14) | +135.7% | Interim Consolidated Statements of Changes in Equity The company's equity position eroded significantly during the first six months of fiscal 2022, falling from $17.8 million at November 30, 2021, to a deficit of $11.6 million by May 31, 2022, primarily due to a net loss of $31.8 million | Equity Reconciliation (Six-Months Ended May 31, 2022) | Amount ($'000) | | :--- | :--- | | Balance as at November 30, 2021 | 17,760 | | Net Loss | (31,759) | | Other Comprehensive Income | 161 | | Share-based Compensation | 2,194 | | Balance as at May 31, 2022 | (11,644) | Interim Consolidated Statements of Cash Flows For the six months ended May 31, 2022, cash and cash equivalents decreased by $7.2 million to $13.2 million, with cash used in operating activities at $5.3 million, while financing activities shifted from providing $41.5 million in 2021 to using $2.2 million in 2022 | Cash Flow Summary | Six-Months Ended May 31, 2022 ($'000) | Six-Months Ended May 31, 2021 ($'000) | | :--- | :--- | :--- | | Cash flows used in operating activities | (5,252) | (5,944) | | Cash flows from (used in) financing activities | (2,163) | 41,542 | | Cash flows from (used in) investing activities | 222 | (10,199) | | Net change in cash during the period | (7,193) | 25,399 | | Cash, beginning of period | 20,399 | 12,737 | | Cash, end of period | 13,200 | 38,235 | Notes to Interim Consolidated Financial Statements The notes provide detailed explanations for the financial statements, including accounting policies, revenue breakdown, significant operational changes, and subsequent events, such as a new $100 million loan facility secured after the reporting period Note 3: Revenue For the six months ended May 31, 2022, total net sales grew 13.9% year-over-year to $37.8 million, driven by increased sales of EGRIFTA SV® and Trogarzo®, with the United States remaining the dominant market at 98.3% of total sales | Net Sales by Product (Six-Months Ended May 31) | 2022 ($'000) | 2021 ($'000) | | :--- | :--- | :--- | | EGRIFTA SV® | 23,120 | 19,032 | | Trogarzo® | 14,705 | 14,185 | | Total | 37,825 | 33,217 | | Net Sales by Geography (Six-Months Ended May 31) | 2022 ($'000) | 2021 ($'000) | | :--- | :--- | :--- | | United States | 37,169 | 31,469 | | Europe | 511 | 1,461 | | Canada | 145 | 287 | | Total | 37,825 | 33,217 | Note 5: Inventories, Prepaid Expenses, and Deposits During the first half of 2022, the company recorded significant charges totaling over $3.3 million in cost of sales, including a $170,000 inventory write-down, a $2.3 million charge for cancelled EGRIFTA SV® production, and a $914,000 write-down of research supplies due to pausing its NASH trial - The company recorded several charges in the first half of 2022, including: - A $170,000 write-down of inventories to net realizable value[25] - A $2.3 million charge for non-production of scheduled EGRIFTA SV® batches due to a planned transition to a new formulation[26] - A $914,000 write-down of research supplies after pausing activities for its NASH trial[27] Note 6: Commercial Operations in Europe On April 27, 2022, the company announced its strategic decision to cease commercial operations for Trogarzo® in Europe to focus on North America, resulting in a $6.36 million charge for accelerated amortization of European commercialization rights and anticipated further charges of approximately $1.5 million for termination expenses - The company is ceasing its Trogarzo® commercial operations in Europe to focus on North America[28] - As a result of this decision, the company recognized a $6,356 thousand expense to fully amortize the European commercialization rights for Trogarzo®[29] - An additional $1,500 thousand in charges related to severance and other termination expenses are expected to be recorded during 2022[29] Note 8: Convertible Unsecured Senior Notes The carrying value of the company's convertible unsecured senior notes increased from $54.2 million at the end of fiscal 2021 to $55.2 million as of May 31, 2022, due to accretion expense, with these notes set to mature on June 30, 2023 | Convertible Notes Carrying Value | Amount ($'000) | | :--- | :--- | | Balance as at November 30, 2021 | 54,227 | | Accretion expense (YTD) | 976 | | Balance as at May 31, 2022 | 55,203 | - The convertible unsecured senior notes mature on June 30, 2023[31] Note 10: Share Capital and Warrants The company's share capital structure includes common shares, warrants, and a stock option plan, which was amended in early 2022 to a 'rolling plan' allowing for up to 10% of outstanding shares to be issued, contributing to a net loss per share of ($0.33) for the first six months of 2022 - On March 3, 2022, the company's Board of Directors amended the stock option plan to a 'rolling plan', allowing for the issuance of up to 10% of all common shares issued and outstanding[36] | Loss Per Share | Three-Months Ended May 31 | Six-Months Ended May 31 | | :--- | :--- | :--- | | 2022 | ($0.24) | ($0.33) | | 2021 | ($0.07) | ($0.14) | Note 13: Capital Management and Liquidity Risk The company manages its capital to ensure sufficient liquidity for operations, relying on product revenues and periodic financing, and as of May 31, 2022, held $32.5 million in cash, bonds, and money market funds, which, along with future cash flows and a new financing facility secured post-period, is believed to be sufficient for at least the next 12 months - The company depends on revenue from EGRIFTA SV® and Trogarzo®, as well as periodic securities offerings and debt financing, to fund its activities[46] - As of May 31, 2022, the company's cash, bonds, and money market funds totaled $32,491 thousand[47] - Management believes its cash position and future operating cash flows, supplemented by a new financing secured after May 31, 2022, will be sufficient to finance operations for at least the next 12 months[47][48] Note 15: Operating Segments The company operates as a single operating segment and faces significant customer concentration risk, with over 98% of its revenues for the six months ended May 31, 2022, generated from a single customer, RxCrossroads, domiciled in the United States - The company has a single operating segment and significant customer concentration, with over 98% of revenues in the first half of 2022 coming from one customer, RxCrossroads[53][54] Note 16: Subsequent Events On July 13, 2022, subsequent to the reporting period, the company secured a crucial binding commitment for a non-dilutive senior secured term loan of up to $100 million with Marathon Asset Management, with the initial tranche of $40 million expected by July 29, 2022, and concurrently arranged to repurchase $30 million of its convertible notes, addressing near-term maturity risk - On July 13, 2022, the company announced a binding commitment for a non-dilutive term loan facility for up to $100 million with Marathon Asset Management[55] - The loan is structured in four tranches, with the first $40 million expected to be funded by July 29, 2022[55] - Subsequent tranches are contingent on meeting specific revenue and regulatory milestones[55] - The company also signed agreements to repurchase $30 million principal amount of its Convertible Notes, with the purchase to be completed by July 29, 2022[56]