Theratechnologies(THTX) - 2023 Q3 - Quarterly Report

Interim Consolidated Financial Statements This section presents the company's unaudited financial position, performance, equity changes, and cash flows for the interim period Interim Consolidated Statements of Financial Position The company's financial position weakened, marked by a significant decrease in total assets, a reclassification of major debt to current liabilities, and a growing equity deficit Financial Position Summary | Financial Item | August 31, 2023 ($'000) | November 30, 2022 ($'000) | Change ($'000) | | :--- | :--- | :--- | :--- | | Total current assets | 40,565 | 73,370 | (32,805) | | Total assets | 56,686 | 93,260 | (36,574) | | Total current liabilities | 97,656 | 114,279 | (16,623) | | Total liabilities | 98,390 | 115,831 | (17,441) | | Total equity | (41,704) | (22,571) | (19,133) | - The Loan Facility of $57.1 million was classified as a current liability as of August 31, 2023, a significant shift from its prior non-current status that contributed to the large working capital deficit[3] - Inventories saw a sharp decline from $19.7 million to $6.7 million, and cash decreased from $23.9 million to $15.0 million, indicating significant use of working capital[3] Interim Consolidated Statements of Comprehensive Loss The company narrowed its net loss to $21.2 million from $39.3 million year-over-year, driven by reduced operating expenses despite flat revenue and rising finance costs Comprehensive Loss Summary | Metric | Nine Months Ended Aug 31, 2023 ($'000) | Nine Months Ended Aug 31, 2022 ($'000) | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Revenue | 58,312 | 58,636 | -0.5% | | Total operating expenses | 71,609 | 92,836 | -22.9% | | Loss from operating activities | (13,297) | (34,200) | +61.1% | | Finance costs | (10,334) | (5,337) | -93.6% | | Net loss for the period | (21,202) | (39,308) | +46.1% | | Basic and diluted loss per share | $(0.88) | $(1.65) | +46.7% | - The reduction in operating loss was primarily driven by lower selling expenses (down to $20.0M from $31.6M) and R&D expenses (down to $25.1M from $27.5M)[4] Interim Consolidated Statements of Changes in Equity The total equity deficit increased from $22.6 million to $41.7 million, primarily due to the $21.2 million net loss incurred during the nine-month period Changes in Equity Summary | Equity Component | Amount ($'000) | | :--- | :--- | | Balance as at November 30, 2022 | (22,571) | | Net loss for the period | (21,202) | | Other comprehensive income | 201 | | Share-based compensation | 1,853 | | Other transactions with owners | 15 | | Balance as at August 31, 2023 | (41,704) | Interim Consolidated Statements of Cash Flows The company experienced a net cash decrease of $8.9 million, with significant financing outflows for note repurchases partially funded by new loan proceeds Cash Flow Summary | Cash Flow Activity | Nine Months Ended Aug 31, 2023 ($'000) | Nine Months Ended Aug 31, 2022 ($'000) | | :--- | :--- | :--- | | Cash flows from (used in) operating activities | (1,572) | (9,491) | | Cash flows from investing activities | 966 | 5,116 | | Cash flows used in financing activities | (8,318) | 7,491 | | Net change in cash during the period | (8,924) | 3,116 | - A major financing activity was the repurchase of convertible unsecured senior notes for $27.5 million, funded in part by proceeds of $20.0 million from the Loan Facility[10] Notes to Interim Consolidated Financial Statements This section provides detailed explanations of accounting policies, financial statement line items, and significant events impacting the company's performance Note 1: Basis of preparation A material uncertainty exists regarding the company's ability to continue as a going concern due to a loan covenant default and reliance on future events - On July 31, 2023, the company executed a 1-for-4 consolidation of its common shares, and all share and per-share data has been retrospectively adjusted[16] - Management has identified a material uncertainty that casts substantial doubt on the Company's ability to continue as a going concern due to a loan covenant default, negative cash flows, and reliance on future waivers and approvals[19][20][23] - The financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern[24] Note 2: Significant accounting policies The company voluntarily changed its policy to classify interest paid and received as operating activities, requiring a restatement of prior-period cash flow figures - The company voluntarily changed its accounting policy to classify interest paid and received within operating activities on the statement of cash flows[31] - As a result of the policy change, the comparative 2022 cash flow statement was recast, decreasing cash used in operations by $3.0 million[32] Note 3: Revenue Total net sales remained flat year-over-year at $58.3 million, with revenue dominated by two key products sold almost exclusively in the United States Revenue by Product | Product | Nine Months Ended Aug 31, 2023 ($'000) | Nine Months Ended Aug 31, 2022 ($'000) | | :--- | :--- | :--- | | EGRIFTA SV® | 36,747 | 35,996 | | Trogarzo® | 21,565 | 22,640 | | Total | 58,312 | 58,636 | Revenue by Geography | Geography | Nine Months Ended Aug 31, 2023 ($'000) | Nine Months Ended Aug 31, 2022 ($'000) | | :--- | :--- | :--- | | United States | 57,882 | 57,450 | | Europe | 344 | 1,028 | | Canada | 86 | 158 | | Total | 58,312 | 58,636 | Note 4: Finance income and finance costs Net finance costs increased significantly to $7.6 million, driven by higher interest expense and a one-time $2.65 million loss on debt modification Finance Costs Breakdown | Item | Nine Months Ended Aug 31, 2023 ($'000) | Nine Months Ended Aug 31, 2022 ($'000) | | :--- | :--- | :--- | | Interest on convertible notes and Loan Facility | (5,902) | (2,679) | | Loss on debt modification – Issuance of Marathon Warrants | (2,650) | - | | Total Finance Costs | (10,334) | (5,337) | Note 5: Inventories The company recognized a $170,000 provision for an unapproved product formulation and returned $3.3 million of inventories to a supplier - An inventory provision of $170k was recorded for the F8 formulation of tesamorelin, pending its marketing approval[38] - In the second quarter of 2023, inventories valued at $3,295k were returned to TaiMed Biologics Inc, reducing accounts payable by $3,399k[39] Note 6: Provisions A restructuring plan initiated in July 2023 resulted in a new provision of $719,000 for severance and other related expenses - In July 2023, the company initiated a reorganization focused on its R&D activities due to weak revenues in the first half of the year[40] - A restructuring charge of $719k was recorded in Q3 2023, with an additional charge of approximately $335k expected in Q4 2023[40] Note 7: Loan Facility The company breached a minimum liquidity covenant on its $100 million loan facility, with future funding contingent on meeting revised targets and regulatory approvals - The company breached a minimum liquidity covenant on its Loan Facility on July 3, 2023, which constituted an event of default[43] - The company drew down the $20 million Tranche 2 Loan on June 21, 2023, bringing the total outstanding balance to $57.1 million on a carrying value basis[45][47] - Availability of the $15 million Tranche 3 Loan is conditional upon FDA approval for the F8 formulation of tesamorelin by March 31, 2024, and meeting a $90 million revenue target[45] Note 8: Convertible unsecured senior notes The company fully redeemed all outstanding convertible unsecured senior notes for $27.5 million in cash, extinguishing this liability - On June 30, 2023, the Company redeemed all of its issued and outstanding convertible unsecured senior notes for a cash payment of $27,452k[49] Note 9: Lease liabilities Lease liabilities decreased from $1.9 million to $1.1 million following the termination of a lease in Ireland, which resulted in a gain of $121,000 - The company terminated its lease in Ireland on February 17, 2023, reducing lease liabilities by $920k and recognizing a gain on termination of $121k[51] Note 10: Share capital and warrants The company issued 5 million warrants to its lender as part of a loan amendment, which are classified as a derivative financial liability - On February 27, 2023, the company issued 5,000,000 common share purchase warrants (the "Marathon Warrants") to its lender as consideration for amending the Loan Facility[53] - The Marathon Warrants are accounted for as a derivative financial liability measured at fair value, resulting in a $2.65 million loss on debt modification[53][55] - The company's stock option plan was amended to allow for issuance up to 17% of outstanding common shares and includes an "evergreen" feature[57] Note 11: Supplemental cash flow disclosures The company disclosed non-cash activities, including $400,000 in loan issuance costs that were accrued rather than paid in cash during the period Non-Cash Transactions | Non-Cash Transaction | August 31, 2023 ($'000) | August 31, 2022 ($'000) | | :--- | :--- | :--- | | Costs related to issuance of Loan Facility included in accounts payable | 400 | 202 | Note 12: Financial instruments A schedule of contractual maturities reveals significant near-term obligations, with $43.4 million in financial liabilities due in less than one year Contractual Maturities of Financial Liabilities | Liability | Carrying Amount ($'000) | Less than 1 year ($'000) | 1 to 2 years ($'000) | More than 3 years ($'000) | Total Contractual Amount ($'000) | | :--- | :--- | :--- | :--- | :--- | :--- | | Accounts payable and accrued liabilities | 30,457 | 30,457 | - | - | 30,457 | | Loan Facility, including interest | 57,143 | 12,415 | 51,849 | 18,028 | 82,292 | | Lease liabilities | 1,096 | 486 | 618 | 128 | 1,232 | Note 13: Determination of fair values The company classifies its financial instruments into a three-level hierarchy, with warrants and deferred stock units valued using Level 3 unobservable inputs - The company uses a three-level hierarchy to determine the fair value of its financial instruments[72] - The Marathon Warrants and deferred stock units (DSUs) liability are considered Level 3 in the fair value hierarchy, valued using models with unobservable market data[77] Note 14: Operating segments The company operates as a single segment and has a significant customer concentration, with over 99% of revenues generated from a single customer - The company has a single operating segment[78] - There is a high customer concentration, with over 99% of revenues for the nine months ended August 31, 2023, coming from one customer, RxCrossroads[78][79] Note 15: Subsequent events After the reporting period, the company obtained a waiver for its loan covenant breach and agreed to amend the facility to include EBITDA-based targets - On September 21, 2023, the company obtained a waiver from its lender with respect to the previously disclosed Liquidity Breach[81] - An agreement in principle was reached to amend the Loan Facility, moving from quarterly revenue targets to adjusted EBITDA-based targets[82] - As part of the loan amendment, the company agreed to reprice the 5,000,000 Marathon Warrants, lowering the exercise price to $2.30 per share[82][83]