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falseFY0001512717--11-30The company voluntarily changed its accounting policy to classify interest paid and received as part of operating activities, see Note 1.See note 1 for share consolidation.On February 17, 2023, the Company terminated its lease in Ireland. Accordingly, the Company reduced its right-of-use assets by $799, the lease liabilities by $920 and recorded a gain on lease termination of $121. The gain is presented in finance costs (Note 5)On March 1, 2023, the Company signed a new lease in Ireland. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 
20-F
 
 
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2023
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
    
For the transition period from
    
to
    
Commission file number
001-35203
 
 
THERATECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
 
 
THERATECHNOLOGIES INC.
(Translation of Registrant’s name into English)
Quebec
(Jurisdiction of incorporation or organization)
2015 Peel Street
, 11th Floor,
Montreal, Quebec
,
Canada
,
H3A 1T8
(Address of principal executive offices)
Jocelyn Lafond
, Tel.: (
438
)
315-6607
,
Fax: (514) 331-9691
2015 Peel Street
, 11th Floor,
Montreal, Quebec
,
Canada
,
H3A 1T8
(Name, Telephone,
E-mail
and/or Facsimile number and Address of Company Contact Person)
 
 
Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Shares, no par value   THTX   NASDAQ Capital Market

Table of Contents
Securities registered or to be registered pursuant to Section 12(g) of the Act.
 
(Title of Class)
 
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Common Shares
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
45,980,019
Common Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ 
No
 ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ 
No
 ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Yes
 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
Yes
 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
☐ Large accelerated filer ☐ Accelerated
filer 
Non-accelerated filer
 Emerging Growth Company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. 
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b) by the registered public accounting firm that prepared or issued its audit report. 
 
 Auditor Name: KPMG LLP    Auditor Location: Montreal, Quebec, Canada    Auditor Firm ID: 85
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. 
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the statements included in this filing:
 
U.S. GAAP ☐     International Financial Reporting Standards as issued         Other ☐
    by the International Accounting Standards Board        
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  Item 17 ☐  Item 18 ☒
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐  No 
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROC
E
EDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
 
 
 


 

TABLE OF CONTENTS

 

             Page   
INTRODUCTION      4  
PART I      8  

Item 1.

  Identity of Directors, Senior Management and Advisors   
  A.   Directors and Senior Management      8  
  B.   Advisors      8  
  C.   Auditors      8  

Item 2.

  Offer Statistics and Expected Timetable   
  A.   Offer Statistics      9  
  B.   Method and Expected Timetable      9  

Item 3.

  Key Information   
  A.   [Reserved]      9  
  B.   Capitalization and Indebtedness      9  
  C.   Reasons for the Offer and Use of Proceeds      9  
  D.   Risk Factors      9  

Item 4.

  Information on the Company   
  A.   History and Development of the Company      33  
  B.   Business Overview      36  
  C.   Organizational Structure      51  
  D.   Property, Plants and Equipment      52  

Item 4A.

  Unresolved Staff Comments      52  

Item 5.

  Operating and Financial Review and Prospects   
  A.   Operating Results      52  
  B.   Liquidity and Capital Resources      56  
  C.   Research and Development, Patents and Licenses, etc.      61  
  D.   Trend Information      61  
  E.   Critical Accounting Estimates      62  

Item 6.

  Directors, Senior Management and Employees   
  A.   Directors and Senior Management      63  
  B.   Compensation      75  
  C.   Board Practices      101  
  D.   Employees      102  
  E.   Share Ownership      103  
  F.   Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation      103  

Item 7.

  Major Shareholders and Related Party Transactions   
  A.   Major Shareholders      104  
  B.   Related Party Transactions      104  
  C.   Interests of Experts and Counsel      104  

Item 8.

  Financial Information   
  A.   Consolidated Statements and Other Financial Information      104  

Item 9.

  The Offer and Listings   
  A.   Offer and Listing Details      105  
  B.   Plan of Distribution      105  
  C.   Markets      105  
  D.   Selling Shareholders      105  
  E.   Dilution      105  
  F.   Expenses of the Issue      105  


             Page   

Item 10.

  Additional Information   
  A.   Share Capital      105  
  B.   Memorandum and Articles of Association      105  
  C.   Material Contracts      119  
  D.   Exchange Controls      122  
  E.   Taxation      122  
  F.   Dividends and Paying Agents      129  
  G.   Statement by Experts      129  
  H.   Documents on Display      129  
  I.   Subsidiary Information      129  
  J.   Annual Report to Security Holders      129  

Item 11.

  Quantitative and Qualitative Disclosures about Market Risks      130  

Item 12.

  Description of Securities Other than Equity Securities   
  A.   Debt Securities      130  
  B.   Warrants and Rights      130  
  C.   Other Securities      130  
  D.   American Depositary Shares      130  
PART II      131  

Item 13.

  Defaults, Dividend Arrearages and Delinquencies      131  

Item 14.

  Material Modification to the Rights of Security Holders and Use of Proceeds      131  

Item 15.

  Controls and Procedures      131  

Item 16.

  [Reserved]      133  

Item 16A.

  Audit Committee Financial Expert      133  

Item 16B.

  Code of Ethics      133  

Item 16C.

  Principal Accountant Fees and Services      133  

Item 16D.

  Exemptions from the Listing Standards for Audit Committees      134  

Item 16E.

  Purchases of Equity Securities by the Issuer and Affiliated Purchasers      134  

Item 16F.

  Change in Registrant’s Certifying Accountant      134  

Item 16G.

  Corporate Governance      134  

Item 16H.

  Mine Safety Disclosure      134  

Item 16I.

  Disclosure Regarding Foreign Jurisdictions that Prevent Inspections      134  

Item 16J.

  Insider Trading Policies      135  

Item 16K.

  Cybersecurity      135  
PART III      136  

Item 17.

  Financial Statements      136  

Item 18.

  Financial Statements      136  

Item 19.

  Exhibits      137  
SIGNATURES      140  


INTRODUCTION

 

 

BASIS OF PRESENTATION

In this Annual Report on Form 20-F (“Annual Report”):

 

   

References to “Theratechnologies”, the “Company”, the “Corporation”, “we”, “our” and “us” or similar terms refer to Theratechnologies Inc. and its subsidiaries on a consolidated basis, unless otherwise indicated or unless the context requires otherwise.

 

   

EGRIFTA SV® (tesamorelin for injection) refers to tesamorelin indicated for the reduction of excess abdominal fat in HIV-infected adult patients with lipodystrophy. EGRIFTA SV® is our registered trademark in the United States and this mark is used in the United States to commercialize tesamorelin for the reduction of excess abdominal fat in HIV-infected adult patients with lipodystrophy.

 

   

Trogarzo® (ibalizumab-uiyk) refers to a recombinant humanized monoclonal antibody. Trogarzo®, in combination with other antiretroviral(s) (“ARV”), is indicated for the treatment of human immunodeficiency virus type 1 (“HIV-1”) infection in heavily treatment-experienced adults with multidrug-resistant (“MDR”) HIV-1 infection failing their current ARV regimen. Trogarzo® is a registered trademark of TaiMed Biologics, Inc. (“TaiMed”) and is under licence to us for use in the United States and Canada.

 

   

THERA Patient Support® is our registered trademark in the United States and it refers to our patients and physicians service desk providing support to these people in connection with our commercialized products.

 

   

SORT1+ Technology is our trademark and refers to our licensed platform to develop peptide-drug conjugates (“PDC”).

 

   

Except as otherwise indicated, the financial information contained in this Annual Report and in our financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

 

   

The Company’s functional and presentation currency is the United States dollar. Except as otherwise indicated, all monetary amounts set forth in this Annual Report are expressed in United States dollar.

 

   

References to “$” and “US$” are to U.S. dollars and references to “CA$” or “CAD” are to Canadian dollars.

 

   

Any references in this Annual Report to the number of common shares (“Common Shares”) (including earnings per share), Marathon Warrants (as defined below), share options and the exercise price of the Marathon Warrants, share options and other equity-linked securities issued by the Corporation have been retrospectively adjusted and restated to reflect the effect of the Consolidation (as defined below), on a retrospective basis.

 

   

All information is provided as of November 30, 2023, except where otherwise stated.

 

FORWARD-LOOKING STATEMENTS

This Annual Report and the documents contained herein by reference contain forward-looking statements and forward-looking information within the meaning of applicable securities laws that are based on our management’s 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 expectations regarding the commercialization of EGRIFTA SV® and Trogarzo®, despite new market entrants;

 

4


   

our ability and capacity to grow the sales of EGRIFTA SV® and Trogarzo® successfully in the United States;

 

   

our capacity to meet supply and demand for our products;

 

   

our revenue and Adjusted EBITDA (as defined below) guidance, which are based on our assumption that our revenues continue to grow in Fiscal 2024 and that we continue our close monitoring and management of expenses;

 

   

our ability to continue generating a positive Adjusted EBITDA;

 

   

the market acceptance of EGRIFTA SV® and Trogarzo® in the United States;

 

   

the continuation of our collaborations and other significant agreements with our existing commercial partners and third-party suppliers and our ability to establish and maintain additional collaboration agreements;

 

   

our success in continuing to seek and in maintaining reimbursement for EGRIFTA SV® and Trogarzo® by third-party payors in the United States;

 

   

the pricing and reimbursement conditions of other competing drugs or therapies that are or may become available;

 

   

our ability to protect and maintain our intellectual property rights in tesamorelin and our other peptide-drug conjugates;

 

   

our capacity to enroll patients and complete our Phase 1 clinical trial studying sudocetaxel zendusortide;

 

   

our ability to develop other peptide-drug conjugates generated through our SORT1+Technology platform;

 

   

our ability to successfully address the questions raised by the FDA in its complete response letter (“CRL”) regarding the F8 formulation of tesamorelin (“F8 Formulation”) and to resubmit the F8 Formulation for approval to the United States Food and Drug Administration (“FDA”);

 

   

the approval of the F8 Formulation by the FDA;

 

   

our ability to successfully complete the human factors validation study (“HFS”) results for EGRIFTA SV® and to resubmit a Changes Being Effected (“CBE”) supplement with the FDA for EGRIFTA SV® on or before September 15, 2024, or any other prescribed deadline we may be able to negotiate with the FDA;

 

   

our capacity to meet the undertakings, covenants and obligations contained in the credit agreement dated July 20, 2022, as amended from time to time (“Marathon Credit Agreement”), entered into with Marathon’s affiliates (collectively “Marathon”) and not be in default thereof;

 

   

our capacity to find a partner to conduct a Phase 2b/3 clinical trial using tesamorelin for the treatment of nonalcoholic steatohepatitis (“NASH”) in the general population;

 

   

our capacity to find a partner to pursue the development of sudocetaxel zendusortide once the Phase 1 clinical trial is completed;

 

   

our capacity to acquire, in-license, or copromote new commercialized drug products;

 

   

our expectations regarding our financial performance, including revenues, expenses, gross margins, profitability, liquidity, capital expenditures and income taxes;

 

   

our estimates regarding our capital requirements; and

 

   

our ability to meet the timelines set forth herein.

 

5


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:

 

  ·  

sales of EGRIFTA SV® and Trogarzo® in the United States will increase over time;

 

  ·  

our expenses will remain under control;

 

  ·  

our commercial practices in the United States will not be found to be in violation of applicable laws;

 

  ·  

the long-term use of EGRIFTA SV® and Trogarzo® will not change their respective current safety profile;

 

  ·  

no recall or market withdrawal of EGRIFTA SV® and Trogarzo® will occur;

 

  ·  

no laws, regulation, order, decree or judgment will be passed or issued by a governmental body negatively affecting the marketing, promotion or sale of EGRIFTA SV® and Trogarzo® in the United States;

 

  ·  

continuous supply of EGRIFTA SV® and Trogarzo® will be available to meet market demand on a timely basis;

 

  ·  

our relations with third-party suppliers of EGRIFTA SV® and Trogarzo® will be conflict-free;

 

  ·  

the level of product returns and the value of chargebacks and rebates will not exceed our estimates in relation thereto;

 

  ·  

no biosimilar version of tesamorelin will be approved by the FDA;

 

  ·  

we will be able to satisfactorily answer all of the questions asked by the FDA in the CRL related to the F8 Formulation and to resubmit our file to the FDA seeking the approval of the F8 Formulation;

 

  ·  

the FDA will approve the F8 Formulation;

 

  ·  

no vaccine or cure will be found for the prevention or eradication of HIV;

 

  ·  

the HFS for EGRIFTA SV® will be successfully completed and we will resubmit a CBE supplement with the FDA for EGRIFTA SV® within the prescribed timelines;

 

  ·  

the FDA will approve the CBE supplement for EGRIFTA SV®;

 

  ·  

the FDA will approve the intramuscular (“IM”) method of administration for the maintenance dose of Trogarzo®;

 

  ·  

we will not default under the terms and conditions of the Marathon Credit Agreement, including meeting the minimum liquidity and Marathon Adjusted EBITDA (as defined below) target covenants therein;

 

  ·  

the interest rate on the amount borrowed from Marathon under the Marathon Credit Agreement will not materially vary upwards;

 

  ·  

the Corporation will continue as a going concern;

 

  ·  

we will find a partner to conduct a Phase 2b/3 clinical trial studying tesamorelin for the treatment of NASH in the general population;

 

  ·  

we will be able to recruit patients for our Phase 1 clinical trial studying sudocetaxel zendusortide and will be able to see signs of efficacy without observing material adverse effects;

 

  ·  

we will find a partner to pursue the development of sudocetaxel zendusortide once the Phase 1 clinical trial has been completed;

 

6


  ·  

our research and development activities will yield positive results;

 

  ·  

the data obtained from our market research on the potential market for EGRIFTA SV® and on the potential market for Trogarzo® in the United States are accurate;

 

  ·  

the timelines set forth herein will not be materially adversely impacted by unforeseen events that could arise subsequent to the date of this Annual Report;

 

  ·  

our business plan will not be substantially modified; and

 

  ·  

no international event, such as a pandemic or worldwide war, will occur and adversely affect global trade.

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 Statements and circumstances discussed in this Annual Report may not occur, and you should not place undue reliance on these Forward-Looking Statements. We discuss many of our risks in greater detail under “Item 3D – Risk Factors” (below) but additional risks and uncertainties, including those that we do not know about or that we currently believe are immaterial, may also adversely affect the Forward-Looking Statements, our business, financial condition and prospects. Also, these Forward-Looking Statements represent our estimates and assumptions only as of the date of this Annual Report. 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 Annual Report, and particularly our Forward-Looking Statements, with these cautionary statements.

STATUS AS AN EMERGING GROWTH COMPANY

We are an “emerging growth company” as defined in Section 3(a) of the United States Securities Exchange Act of 1934, as amended (“Exchange Act”) by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We will continue to qualify as an “emerging growth company” until the earliest to occur of: (a) the last day of the fiscal year during which we had total annual gross revenues of $1,235,000,000 (as such amount is indexed for inflation every 5 years by the United States Securities and Exchange Commission (“SEC”)) or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of equity securities pursuant to an effective registration statement under the United States Securities Act of 1933, as amended (“Securities Act”); (c) the date on which we have, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer”, as defined in Exchange Act Rule 12b-2. We expect to continue to be an emerging growth company for the immediate future.

Generally, a registrant that registers any class of its securities under Section 12 of the Exchange Act is required to include in the second and all subsequent annual reports filed by it under the Exchange Act a management report on internal control over financial reporting and, subject to an exemption available to registrants that are neither an “accelerated filer” or a “large accelerated filer” (as those terms are defined in Exchange Act Rule 12b-2), an auditor attestation report on management’s assessment of internal control over financial reporting. However, for so long as we continue to qualify as an emerging growth company, we will be exempt from the requirement to include an auditor attestation report on management’s assessment of internal controls over financial reporting in its annual reports filed under the Exchange Act, even if we were to qualify as an “accelerated filer” or a “large accelerated filer”.

 

7


FOREIGN PRIVATE ISSUER FILINGS

We are considered a “foreign private issuer” pursuant to Rule 405 promulgated under the Securities Act. In our capacity as a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information. For as long as we are a “foreign private issuer” we intend to file our annual financial statements on Form 20-F and furnish our quarterly financial statements on Form 6-K to the SEC for so long as we are subject to the reporting requirements of Section 13(g) or 15(d) of the Exchange Act. However, the information we file or furnish may not be the same as the information that is required in annual and quarterly reports on Form 10-K or Form 10-Q for United States domestic issuers. Accordingly, there may be less information publicly available concerning us than there is for a company that files as a domestic issuer.

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We are required to determine our status as a foreign private issuer on an annual basis at the end of our second fiscal quarter. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by United States residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are United States citizens or residents; (2) more than 50% of our assets are located in the United States; or (3) our business is administered principally in the United States. If we lose our “foreign private issuer status” we would be required to comply with Exchange Act reporting and other requirements applicable to United States domestic issuers, which are more detailed and extensive than the requirement for foreign private issuers.

NON-IFRS AND NON-U.S. GAAP MEASURE

The information presented in this Annual Report includes a measure that is not determined in accordance with IFRS or U.S. generally accepted accounting principles (“U.S. GAAP”), being the term “Adjusted EBITDA”. “Adjusted EBITDA” is used by the Corporation as an indicator of financial performance and is obtained by adding to net profit or loss, finance income and costs, depreciation and amortization, income taxes, share-based compensation from stock options, certain restructuring costs and certain write-downs (or related reversals) of inventories. “Adjusted EBITDA” excludes the effects of items that primarily reflect the impact of long-term investment and financing decisions rather than the results of day-to-day operations. The Corporation believes that this measure can be a useful indicator of its operational performance from one period to another. The Corporation uses this non-IFRS measure to make financial, strategic and operating decisions. “Adjusted EBITDA” is not a standardized financial measure under the financial reporting framework used to prepare the financial statements of the Corporation to which the measure relates and might not be comparable to similar financial measures disclosed by other issuers. A quantitative reconciliation of Adjusted EBITDA is presented under “Item 5 – Operating and Financial Review and Prospects – Reconciliation of Adjusted EBITDA” of this Annual Report.

The calculation of the “Adjusted EBITDA” in this Annual Report is different from the calculation of the adjusted EBITDA (“Marathon Adjusted EBITDA”) under the Marathon Credit Agreement for the purpose of complying with the covenants therein.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

A.  Directors and senior management.

Not applicable

B.   Advisers.

Not applicable

C.  Auditors.

Not applicable

 

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Item 2. Offer Statistics and Expected Timetable

A.   Offer Statistics

Not applicable

B.   Method and Expected Timetable

Not applicable

Item 3. Key Information

A.   (Reserved)

B.   Capitalization and indebtedness

Not applicable

C.   Reasons for the offer and use of proceeds

Not applicable

D.   Risks factors

Before you invest in our securities, you should understand the high degree of risk involved and consider carefully the risks and uncertainties described below. 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 develop as our operations evolve and, therefore, may adversely affect our business, financial condition, operating results or prospects. As a result, the trading price of our securities, including our common shares, could decline and you could lose all or part of your investment.

This Annual Report also contains Forward-Looking Statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these Forward-Looking Statements as a result of certain factors, including the risks described below.

Risks Related to the Corporation’s Cash Position

The Corporation’s report of independent registered public accounting firm (“Auditors Report”) to shareholders and the Board of Directors of the Corporation, as well as note 1 to the audited consolidated financial statements of the Corporation for the fiscal year ended November 30, 2023 contains a going concern note about the Corporation’s ability to continue as a going concern and its capacity to honor its obligations as they fall due during a period of at least, but not limited to, 12 months from November 30, 2023. The going concern note casts substantial doubt about the capacity of the Corporation to meet its monetary obligations.

The Corporation’s Auditors Report to the shareholders and Board of Directors, as well as note 1 to the audited annual consolidated financial statements of the Corporation for the fiscal year ended November 30, 2023, contains a going concern note about the Corporation’s ability to continue as a going concern and the capacity of the Corporation to realize its assets and discharge its liabilities and commitments in the normal course of business. The going concern note casts substantial doubt about the capacity of the Corporation to honor its obligations as they fall due during a period of at least 12 months from November 30, 2023.

A breach of a financial covenant under the Marathon Credit Agreement would entitle the lender to demand immediate repayment of the Corporation’s debt. As at November 30, 2023, the Corporation’s cash, bonds and money market funds amounted to $40.4 million whereas the principal of the loan to be reimbursed would amount to $60.6 million. Therefore, the Corporation could be unable to reimburse its debt unless it is able to find additional external financing by way of an equity offering. Absent such additional source of financing, the Corporation may have to resort to insolvency laws.

 

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In the event there occurs an event of default under the Marathon Credit Agreement, the interest rate payable on the loaned amount increases by 300 basis points and Marathon has the right to declare all amounts outstanding under the loan immediately due and payable. If Marathon was to declare all loaned amounts due and payable under the Marathon Credit Agreement, the Corporation would not currently be able to repay such amount unless it secures additional financings. Therefore, the Corporation would have to issue additional equity or secure access to alternative funding enabling it to repay in full the loaned amounts under the Marathon Credit Agreement. The issuance of additional equity would dilute current shareholders and such dilution could be substantial depending on the amount of money the Corporation would have to raise and the price at which such equity offering would be made. In the event the Corporation is unable to implement measures allowing it to secure the repayment of its debt, the Corporation could also have to sell or liquidate its assets or resort to insolvency laws. A recourse to any of these alternatives would have a material adverse effect on the Corporation and its shareholders.

The Marathon Credit Agreement contains various covenants, undertakings and obligations, any breach of which could trigger an event of default under the Marathon Credit Agreement resulting in the interest rate payable on any outstanding loaned amount to be increased by 300 basis points and would allow Marathon to declare such principal amount and interest thereon immediately due and payable. Marathon would have the option to foreclose on all of the assets of the Corporation pursuant to the liens registered against all of the assets of the Corporation.

An event of default under the Marathon Credit Agreement resulting in Marathon declaring all principal amount and interest thereon immediately due and payable would require the Corporation to seek and find alternative sources of financing if liquidities readily available to the Corporation were below the amount of the debt to be repaid. As at November 30, 2023, the Corporation had approximatively $40.4 million in cash, bonds and money market funds while the principal of the debt amounted to $60.6 million. Alternative sources of financing could include the issuance of equity, subject to then prevailing market conditions. The issuance of equity security would dilute shareholders and such dilution could be substantial depending on the price at which the equity offering would be made and the amount to be raised. If the Corporation was unable to secure additional financing to repay any of its outstanding loaned amount, the Corporation could have to sell or liquidate its assets or resort to insolvency laws. A recourse to any of these alternatives would have a material adverse effect on the Corporation and its shareholders.

In the past, the Corporation has breached certain terms and conditions of the Marathon Credit Agreement. While we have been successful in negotiating waivers of default and amendments to the Marathon Credit Agreement, there can be no assurance that, going forward, Marathon will agree to additional waivers or amendments to the Marathon Credit Agreement if the Corporation breaches any of the covenants, undertakings or obligations under such agreement. Furthermore, any additional waivers or amendments to the Marathon Credit Agreement could be costly to the Corporation. The failure to amend the Marathon Credit Agreement or to obtain a waiver from Marathon in the future in the event we are in default under the Marathon Credit Agreement could have a material adverse effect on the Corporation and its business prospects in the event Marathon declares all principal amounts and interest thereon immediately due and payable and the Corporation is unable to repay the loaned amounts.

We did not generate a profit from our operations in the fiscal year ended November 30, 2023. There can be no guarantee that we will ever achieve profitability.

We have a history of net losses, including a net loss of $24 million for the fiscal year ended November 30, 2023. In the future, our profitability will mainly depend on our capacity to successfully maintain the commercialization of EGRIFTA SV® and Trogarzo® in the United States through a low-cost and effective distribution network, compliance with applicable laws, the recruitment and retention of talented personnel, the deployment of effective marketing campaigns and through continued reimbursement coverage for EGRIFTA SV® and Trogarzo® under U.S. Medicare and Medicaid programs and under private-health insurers programs in the United States. Our long-term profitability will also depend on our ability and capacity to acquire or in-license additional commercialized drug products immediately accretive to our business, and to control our operating expenses.

 

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There is no guarantee that we will continue succeeding in growing sales of EGRIFTA SV® and Trogarzo® in the United States or that we will be successful in acquiring or in-licensing additional commercialized drug products. The acquisition or in-licensing of additional commercialized drug products will depend on our ability to identify such products, our capacity to enter into agreements on terms satisfactory to us and to obtain all approvals, if any are required. If revenues grow more slowly than we anticipate or if our operating expenses exceed our expectations, our business, financial condition and operating results could be materially adversely affected, and we may never obtain or sustain profitability.

We may not be able to generate sufficient cash from our operating activities to service our debt obligations.

Future financial and operating performance remain subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We may be unable to generate a level of positive cash flows from operating activities sufficient to pay the principal and interest on the loan provided by Marathon.

For the three months ended November 30, 2023, and for the fiscal year ended November 30, 2023, the Corporation had negative operating cash flows of $4.1 million and $5.7 million, respectively. If the cash flow we generate and our capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay expenditures and capital additions, seek additional capital or restructure or refinance our debt. These measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such cash flows and resources, we could face substantial liquidity problems and we could have to resort to insolvency laws to seek protection from our creditors.

Interest rate fluctuations may have a material adverse effect on our capacity to reimburse the loaned amounts under the Marathon Credit Agreement and on our capacity to execute on our business plan.

The interest rate we have to pay Marathon under the Marathon Credit Agreement is based on the Secured Overnight Financing Rate (“SOFR”), plus 9.5%.

SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. SOFR has a limited history, and the future performance of SOFR cannot be predicted based on its limited historical performance. The level of SOFR may bear little or no relation to historical, actual or indicative data. Prior observed patterns, if any, in the behavior of market variables and their relation to SOFR, such as correlations, may change in the future. While some pre-publication historical data have been released by the Federal Reserve Bank of New York, such analysis inherently involves assumptions, estimates and approximations, and hypothetical or historical performance data are not indicative of, and have no bearing on, the potential performance of SOFR. The future performance of SOFR is therefore impossible to predict, and no future performance of SOFR may be inferred from any of the historical, actual or indicative data. Changes in the levels of SOFR will affect the interest rate we have to pay to Marathon under the Marathon Credit Agreement during the term of the loan and may adversely affect the amount of cash we will have to allocate to the repayment of the loan.

Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions, and other factors beyond our control. If SOFR increases as a result of events over which we have no control, this could have a material adverse effect on our financial condition and results of operations. If SOFR increases, our debt service obligations would increase even if the amount borrowed remained the same, and our net loss will increase and cash flows from operating activities, including cash available for servicing our indebtedness, will correspondingly decrease.

The Marathon Credit Agreement includes significant operating and financial restrictions on the Corporation, any of which could prevent us from capitalizing on business opportunities. In addition, our failure to comply with such restrictions could trigger an event of default which would increase by 300 basis points the interest payable on any loaned amounts under the Marathon Credit Agreement and would allow Marathon to declare the outstanding loaned amounts immediately due and payable in addition to providing Marathon with the right to foreclose on all of the assets of the Corporation pursuant to the liens registered against all of the assets of the Corporation. If we are unable to cure an event of default or obtain a waiver from Marathon in relation to such event of default, and if we do not have the financial capacity to repay any amount loaned becoming due and payable, we may have to cease our operations and to resort to insolvency laws.

 

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The Marathon Credit Agreement governing our outstanding $60.6 million loan imposes significant operating and financial restrictions on the Corporation. These restrictions limit our ability and the ability of our subsidiaries to, among other things: (i) incur or guarantee additional debt or issue disqualified stock or preferred stock; (ii) pay dividends and make other distributions on, or redeem or repurchase, capital stock; (iii) make certain investments; (iv) incur additional liens; (v) enter into transactions related to the acquisition, disposition, in-licensing or out-licensing of assets; and (vi) merge or consolidate.

In addition, the Marathon Credit Agreement imposes that we maintain a minimum level of liquidity of between $15 million and $20 million in cash, cash equivalent and eligible investments at all times based on the Marathon Adjusted EBITDA thresholds over the most recently ended four fiscal quarters. The minimum liquidity covenant restricts the management of the Corporation’s liquidity and could increase the likelihood that the Corporation may not be able to meet its obligations as they become due. The Marathon Credit Agreement also imposes a minimum Marathon Adjusted EBITDA covenant on a quarterly basis that began with the quarter ending November 30, 2023. The Marathon Credit Agreement further imposes reporting requirements on our business activities on a quarterly basis. These reporting requirements extend beyond those that we have to comply with under securities regulations and add a layer of complexity to our reporting obligations. The minimum liquidity covenant restricts the management of the Corporation’s liquidity and increases the likelihood that the Corporation may not be able to meet its obligations as they become due. As a result of the restrictions and obligations described above, we will be limited as to how we conduct our business and we may be unable to enter into transactions that may be accretive to our business to compete effectively or to take advantage of new business opportunities unless we are able to negotiate waivers or amendments to the Marathon Credit Agreement. Debt financing opportunities will also be limited in the event that we are unable to raise capital through the issuance of equity. There can be no assurances that we will be able to maintain compliance with these requirements and covenants in the future and, if we fail to do so, that we will be able to obtain waivers from Marathon and/or amend the covenants contained in the Marathon Credit Agreement to remove those obligations.

Our failure to comply with the covenants described above as well as other terms of our indebtedness will result in an event of default under the Marathon Credit Agreement which, if not cured or waived, will result in an increase of 300 basis point on the interest payable on the outstanding loaned amount. An event of default under the Marathon Credit Agreement would also allow Marathon to declare all loaned amounts immediately due and payable and entitle Marathon to execute on its first ranking security interest on all of our assets and foreclose on our assets. In the event there occurs an event of default under the Marathon Credit Agreement and we are unable to cure such event of default or obtain a waiver from Marathon in relation thereto, and if we do not have the financial capacity to repay any amount loaned becoming due and payable, we may have to cease our operations and to resort to insolvency laws. Any of those circumstances will have a material adverse effect on shareholders as they will lose the entire value of their investment in the capital of the Corporation.

Risks Related to the Commercialization of Our Products

Our commercial success and revenue growth depend on the commercialization of EGRIFTA SV® and Trogarzo® in the United States; unsatisfactory future sales levels of EGRIFTA SV® and Trogarzo® in the United States will have a material adverse effect on us.

Our ability to generate revenue and sustain growth is currently concentrated solely on the commercialization of EGRIFTA SV® and Trogarzo® in the United States. Our success in generating sales revenue from EGRIFTA SV® and Trogarzo® in the United States will depend on our capacity: (a) to pursue the deployment of a commercialization strategy that will be accepted by patients, healthcare professionals and third-party payors; (b) to maintain reimbursement coverage for EGRIFTA SV® and Trogarzo® by third-party payors; (c) to maintain the registration of EGRIFTA SV® and Trogarzo® on U.S. governmental forms as drugs available for purchase in the United States; (d) to ensure that adequate supplies of EGRIFTA SV® and Trogarzo® are available; (e) to maintain conflict-free relationships with our principal third-party suppliers of services, namely our manufacturers (TaiMed, Bachem Americas Inc. (“Bachem”), and Jubilant HollisterStier, General Partnership (“Jubilant”)), our distributor in the United States Mckesson Specialty Care Distribution, LLC (“McKesson”), as well as other specialized third parties; and (f) remain compliant with applicable laws.

Our success in commercializing our products in the United States will also depend on our capacity to retain qualified, motivated and talented sales representatives and other key individuals instrumental in the commercialization of our products and the capacity of our third-party suppliers to comply with all laws and regulations applicable to the conduct of their respective businesses.

 

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There can be no assurance that sales of our products to customers in the United States will increase in the future or that we will generate sales at a profitable level. If sales of our products decrease, our revenue would be adversely affected which, in turn, could materially adversely affect our business, financial condition and operating results.

Because we expect to be dependent on revenues solely from EGRIFTA SV® and Trogarzo® for the foreseeable future, any negative developments relating to these products, such as safety or efficacy issues, manufacturing issues, the introduction or greater acceptance of competing products, or adverse regulatory or legislative developments, or our inability to successfully manage any of the abovementioned factors, will have a material adverse effect on our business and our future business prospects and could also result in a default to meet the Marathon Adjusted EBITDA covenant.

McKesson is our only client in the United States in connection with the sale of EGRIFTA SV® and Trogarzo® and we are currently negotiating the terms and conditions of a new agreement with McKesson. Any default or a dispute under our current agreement, or its termination, or the failure to enter into a new agreement, would materially adversely affect our revenues, business and operating results.

More than 95% of our revenues are derived from the sale of our products to McKesson that acts as our exclusive distributor in the United States. Our current agreement with McKesson is subject to automatic renewal in April of each year unless a party provides the other with a 120-day written notice of its intent not to renew the agreement or there is no agreement on the fees to be paid annually to McKesson if there is a material change in the industry that causes a financial hardship to McKesson to continue providing its services pursuant to the then agreed upon pricing. In the latter circumstances, McKesson could be entitled to terminate its agreement with us upon a 90-day prior written notice. Both parties also have termination rights in certain other circumstances such as a breach of the agreement. If our agreement with McKesson is terminated, or we are unable to agree on the terms of a new agreement and we are unable to find another distributor prior to its term, or if we are in default or engaged in a dispute with McKesson, our sales may be materially adversely impacted and our revenues could decrease substantially.

In addition, under the terms of our agreement with McKesson, we agreed to reimburse McKesson for chargebacks and other discounts that McKesson may offer to its clients. If McKesson’s clients omit to timely claim from McKesson any discount they are entitled to, or if they make a mistake in assessing the types of discounts they are entitled to claim and they claim those discounts later in a year, we will have to refund McKesson for such discounts to which McKesson’s clients are entitled to and this may materially adversely affect our level of revenues and operating results for the year.

We rely on third parties for the manufacture, distribution and commercialization of our products and such reliance may adversely affect our revenues, business and future business prospects if the third parties are unable or unwilling to fulfill their obligations.

We have a single third-party service provider for some of our core business activities pertaining to the commercialization of our products, namely their manufacturing and distribution. Any material issues such third-party service providers may encounter that relate to the provision of services to us would have a material adverse effect on our revenues, business and future business prospects since these third-party service providers may not be easily or rapidly replaced.

We do not own or operate manufacturing facilities for the production of EGRIFTA SV® and tesamorelin, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on Bachem and Jubilant to manufacture and supply all of our required raw materials, drug substance and drug product for sales of EGRIFTA SV®. We will also rely on a single third-party supplier, Lyophilization Services of New England (“LSNE”) for the manufacture of the F8 Formulation. We have not qualified alternative manufacturers to date and no assurance can be given that such manufacturers will be qualified in the future or receive necessary regulatory approvals. There are a limited number of third-party suppliers that are compliant with current good manufacturing practice, (“GMP”), and that also have the necessary expertise and capacity to manufacture our drug substance and drug product. The replacement of a third-party manufacturer is time-consuming and costly due to the required validation of their capabilities. The validation process includes 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 regulations. In addition, the third-party manufacturer would have to familiarize itself with our technology. Validation of an additional third-party manufacturer takes at least twenty-four (24) months and could take as long as thirty-six (36) months or more. The delays associated with the validation of a third-party manufacturer could negatively affect our ability to commercialize our products in a timely manner and on budget. Given the long lead times to change manufacturers, existing manufacturers may utilize this as leverage in negotiations with us in a manner that is adverse to our business.

 

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TaiMed is our sole supplier of Trogarzo®. TaiMed does not currently own or operate any manufacturing facilities for the production of Trogarzo® and must rely on its suppliers, WuXi Apptec Biologics, Inc., (“WuXi”) and Samsung Biologics Laboratories in South Korea (“Samsung”). We are not in a contractual relationship with WuXi and Samsung for Trogarzo® and, therefore, we may not be able to interact with any of them in the event they encounter issues which could adversely affect the supply of Trogarzo®. In such circumstances, we will need to rely on TaiMed to address any of those issues. We have no control over the time and efforts that TaiMed will devote in finding solutions to supply issues if such were to occur, or any say on the solution itself. Any delay in addressing manufacturing issues or any solution to address a manufacturing problem that is not to our liking could have a material adverse effect on the supply and sale of Trogarzo® and, accordingly, materially adversely affect our revenues.

We do not have state licensure in the United States to distribute EGRIFTA SV®, Trogarzo® or any other product we may acquire or in-license and we have not made any application to obtain the licenses required in order to distribute a drug product in the United States. Our supply chain model is based upon that fact and the distribution of EGRIFTA SV® and Trogarzo® in the United States is done through McKesson which currently holds all state licensure required to distribute a drug product in every American state. Although potential alternative third-party service providers have been identified to replace McKesson in the event that it becomes unable to distribute EGRIFTA SV® and Trogarzo®, we have not entered into any agreements with them and no assurance can be given that such providers would enter into any agreement with us on terms satisfactory to us.

Syneos Health, Inc. (“Syneos”) continues to provide us with support for the commercialization of EGRIFTA SV® and Trogarzo® in the United States through the provision of personnel as part of the managed market and reimbursement teams. Although we are aware that there exist other third-party service providers that could provide the same services as Syneos, we have not entered into any agreements with them nor conducted any audit on them. If we need to find another third-party service provider for some or all of the services provided by Syneos, it will be time-consuming and will be disruptive to our business. In addition, there can be no assurance that we will be able to find such third-party service provider if we are unable to agree on the terms and conditions of an agreement with them.

Finally, we may retain contract research organizations (“CROs”) to support us with the conduct of clinical trials from time to time. These CROs will be tasked with the recruitment of patients, negotiations of clinical study agreements with various clinics and the monitoring of those clinics in connection with our clinical trials. If these CROs default on their covenants or are found, for instance, to be in violation of applicable laws, our clinical trials could be delayed, and any timelines set forth in our public communications could be wrong. In addition, if these CROs are found to be in violation of applicable laws, any data generated in the course of our clinical trials could be questioned by regulatory agencies and this could lead to a rejection of any data submitted to those regulatory agencies at the time of submitting a supplemental Biologics License Application (“sBLA”) or New Drug Application (“ NDA”) seeking the approval of our products.

Our reliance on single third-party service providers for some of our core business activities exposes us to a number of risks. For instance, we may be subject to delays in, or suspension of, the manufacturing of EGRIFTA SV® and Trogarzo® if a third-party manufacturer: (a) becomes unavailable to us, or to TaiMed, for any reason, including as a result of the failure to comply with GMP regulations; (b) experiences manufacturing problems or other operational failures, such as labour disputes, equipment failures or unplanned facility shutdowns required to comply with GMP, or damage from any event, including fire, flood, earthquake, business restructuring, labour disputes, epidemics including global health concerns, or insolvency; (c) fails to perform its contractual obligations under our agreement, such as failing to deliver the quantities requested on a timely basis or not meeting product specifications; (d) makes errors in manufacturing raw materials, components or products that could negatively affect the efficacy or safety of our products or cause delays in the shipment.

We may also be subject to distribution disruption and interrupted sales of EGRIFTA SV® and Trogarzo® in the United States if: (a) we are unable to negotiate the terms of a new agreement to include serialization services (b) McKesson becomes unavailable to us for any reason, including as a result of its failure to meet applicable laws; (c) McKesson experiences warehousing problems or other operational failure, such as unplanned facility shutdown or damage from any event, including fire, flood, earthquake, epidemics including global health concerns, business restructuring or insolvency; or (d) McKesson fails to perform its contractual obligations under our agreement.

 

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We may be subject to a decrease in sales of our products in the United States or we may face reimbursement challenges if Syneos (a) becomes unavailable to us for any reason, including as a result of its incapacity to motivate and retain the employees working on the commercialization of EGRIFTA SV® and/or Trogarzo®; (b) experiences compliance issues with the FDA; or (c) fails to perform its contractual obligations under our agreement.

We no longer have a long-term supply agreement for the supply of sterile water for injection (“SWI”) which is provided to patients with other ancillary devices contained in the administration box in connection with EGRIFTA SV®. As a result, we may run into supply issues because there exists no commitment to supply us with such product and we must order the SWI on a case-by-case basis. If we are unable to purchase SWI, we may have to change our offering to patients, and this could be perceived negatively and could adversely affect the sales, revenues, and operating results of the Corporation.

We no longer have a long-term supply agreement with a supplier of SWI. The Corporation provides SWI to patients in the medication box along with other ancillary devices including alcohol swabs, syringes and needles in connection with EGRIFTA SV®. As a result, we may run into supply issues because there exists no commitment to supply us with SWI and we must order the SWI on a case-by-case basis. If we are unable to purchase SWI, we may have to change our offering to patients, and this could be perceived negatively and could adversely affect the sales, revenues, and operating results of the Corporation.

We do not currently have plans to enter into a long-term supply agreement for SWI. The Corporation intends to pursue the approval of the F8 Formulation and plans to withdraw EGRIFTA SV® from the market if and when the F8 Formulation is approved by the FDA.

Significant safety problems may arise with respect to EGRIFTA SV® and Trogarzo® which could result in restrictions in EGRIFTA SV®’s or Trogarzo®’s label, product recall or withdrawal of any of our products from the market, any of which could materially adversely impact our business and our future business prospects.

New safety issues may arise as EGRIFTA SV® and Trogarzo® are used over longer periods of time by a wider group of patients, some of whom may be taking numerous other medicines, or may suffer from additional underlying health problems. Such safety issues could include an increase in the severity or frequency of known problems or the discovery of previously unknown problems and may result in a variety of adverse regulatory actions. Under U.S. laws, the FDA has broad authority over drug manufacturers to compel any number of actions if safety problems arise, including, but not limited to: (i) requiring manufacturers to conduct post-approval clinical studies to assess known risks or signals of serious risks, or to identify unexpected serious risks; (ii) mandating labeling changes to a product based on new safety information; or (iii) requiring manufacturers to implement a risk evaluation mitigation strategy where necessary to assure safe use of the drug. Similar laws and regulations exist in countries outside of the United States.

Previously unknown safety problems could also result in product recalls, or withdrawal of the products from the territory(ies) where they are approved for commercialization. If new safety issues are discovered, sales of EGRIFTA SV® and/or Trogarzo® may decrease and result in a material adverse effect on our business, financial condition and operating results.

Our levels of revenues are highly dependent on obtaining and maintaining patient reimbursement for EGRIFTA SV® and Trogarzo®.

Market acceptance and sales of EGRIFTA SV® and Trogarzo® 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. Third-party payors 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 are attempting 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. Third-party payors may decrease the level of reimbursement of a product or cease such reimbursement and the occurrence of any of these events could materially adversely affect the sales of EGRIFTA SV® and Trogarzo®.

Sales of EGRIFTA SV® and Trogarzo® to patients benefitting from U.S. Government funded reimbursement programs represent a significant part of our sales. Denial of coverage for any of those products under any of the current programs would materially adversely affect our revenues.

 

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Even though EGRIFTA SV® and Trogarzo® are approved for sale in the United States, revenue that we generate from their sales may be limited.

Sales of EGRIFTA SV® and Trogarzo® will continue to depend upon the acceptance of such products by the medical community, including physicians, patients and third-party payors. The degree of market acceptance of these products will depend on a number of factors, including: (a) demonstrated product safety, including the prevalence and severity of side effects, and effectiveness as a treatment that addresses a significant unmet medical need; (b) storage requirements, dosing regimen and ease of administration; (c) the availability of competitive alternatives; (d) our ability to obtain and maintain sufficient third-party coverage for reimbursement from government health care programs, including U.S. Medicare and Medicaid, private health insurers and other third-party payors; (e) the willingness and ability of patients to pay out-of-pocket for medications; (f) the product price; and (g) the effectiveness of sales and marketing efforts.

If our products are not accepted by the marketplace, the revenue generated therefrom will be limited and our capacity to grow our revenue and become profitable will be hampered. Our failure to grow our revenue and to become profitable will adversely impact the value of the Corporation, including the market price of our shares. If we fail to achieve adequate sales, we may not generate sufficient revenue in order to become profitable and to service the repayment of our debt under the Marathon Credit Agreement.

We face competition and the development of new products by other companies could materially adversely affect our business and operating results.

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. We believe there are currently few approved drug products competing directly with our approved products. However, with respect to Trogarzo®, we face competition from Fostemsavir and Lenacapavir in the United States. In addition, we are aware of other agents, including dolutegravir and darunavir, that are either indicated or commonly used in combination in regimens to treat heavily-treatment experienced patients with MDR HIV-1. With respect to EGRIFTA SV®, we face competition from companies selling human growth hormone, testosterone, insulin sensitizing agents, GLP-1 receptor agonists and sermorelin as those products may be prescribed by physicians. In addition, other approaches to reduce visceral adipose tissue in the abdominal area include coping mechanisms such as lifestyle modification (diet and exercise), switching ARTs or liposuction.

The development of a vaccine against HIV or of any cure against HIV would have a material adverse effect on our business, operating results and financial conditions.

Although there exists no known vaccine and cure for HIV, we are aware that there are research and development activities carried out in order to eradicate this disease. We are also aware that a very low number of patients were cured from HIV. If a vaccine or a cure was found to prevent or cure HIV, sales of our products would be materially adversely impacted and our revenue growth would be hampered. The discovery of any vaccine or cure against HIV would have a material adverse effect on our business, operating results and financial condition.

Risks Related to Research and Development Activities

The conduct of research and development activities is costly, risky and results obtained therefrom may not be those anticipated. Therefore, there can be no assurance that any research and development plan on a product candidate, a new formulation or a new method or route of administration will result in an approved drug, new formulation or new method or route of administration.

 

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The development of new therapies is highly costly, risky and the results obtained therefrom may not yield any of the anticipated benefits. The development of a product candidate into a new drug requires capital or access thereto, as well as the conduct of many tests on animals and humans, all of which must comply with stringent regulation and require substantial investments. There can be no assurance that any research and development program designed to develop a new drug, a new formulation, a new method or route of administration or provide a new treatment, such as the conduct of our Phase 1 clinical trial using sudocetaxel zendusortide for the potential treatment of ovarian cancer, the development of our peptide-drug conjugates resulting from our SORT1+ TechnologyTM platform, and the potential development of tesamorelin for the treatment of NASH in the general population, will end up generating positive results leading to an approved drug, label expansion, new formulation, or a new method or route of administration by a regulatory authority. The failure to develop a new drug, a new formulation or a new method or route of administration could hamper the long-term growth of our business and have long-term adverse effects on our potential revenues and operating results.

The development of sudocetaxel zendusortide for the potential treatment of various types of sortilin-expressing cancers is still uncertain given that the Corporation’s primary goal is to grow its Adjusted EBITDA and, to the extent it is successful in achieving such positive Adjusted EBITDA, the Corporation stated that upon completion of Part 3 of the Phase 1 clinical trial, the Corporation has decided that all future research in oncology would be made through partnership deals. There can be no assurance that the development of sudocetaxel zendusortide will be completed, including the Phase 1 clinical trial, if the revenues generated from the sale of the Corporation’s products and its operating expenses do not result in the achievement of a positive Adjusted EBITDA. Even if the Phase 1 clinical trial is completed, there can be no assurance that the further development of sudocetaxel zendusortide will be pursued if the Corporation is unable to find a partner or if the terms and conditions of any agreement with a partner are not satisfactory to the Corporation. As a result of any of the foregoing, the Corporation may have to cancel the development of sudocetaxel zendusortide, including its Phase 1 clinical trial, and the development of its SORT1+ TechnologyTM platform. Any such cancellation will materially adversely affect its pipeline of drug candidates, all of which would materially adversely affect its long-term growth and prospects. The cancellation of the research and development program in oncology could also have a material adverse effect on the price of our Common Share.

On January 4, 2023, we announced that the development of sudocetaxel zendusortide would be stage-gated and that all decisions related to its development would be carefully taken in the context of the Corporation’s goal to generate a positive Adjusted EBITDA in 2023 and beyond. Over the course of the fiscal year 2023, we have reiterated this message and have implemented a reorganization in July and October 2023 mostly impacting research and development positions within the organization.

Despite the Corporation’s goal of achieving a positive Adjusted EBITDA in 2023 and beyond, on June 2, 2023, the Corporation announced FDA’s acceptance of the Corporation’s amended protocol for the Phase 1 clinical trial using sudocetaxel zendusortide and the Corporation resumed the conduct of such Phase 1 clinical trial. The amended protocol was designed to improve the therapeutic window of sudocetaxel zendusortide and extend its duration of therapy. The frequency of administration was changed to weekly dosing and the patient population was narrowed to focus on those with high grade serous ovarian cancer, including high-grade peritoneal or fallopian tube cancer, or high-grade endometrioid cancer. Patient selection was also refined to focus on those who are less heavily pretreated, with no more than one taxane failure and a maximum of eight prior cancer treatment regimens. The Corporation has committed to delivering on Part 3 of the Phase 1 clinical trial in advanced ovarian cancers. However, this commitment remains subject to the Corporation becoming cash-flow positive and on growing its Adjusted EBITDA. The ability of the Corporation to generate a positive Adjusted EBITDA will depend on the Corporation’s revenues generated from the sale of its products and on its operating expenses. There can be no assurance that the development of sudocetaxel zendusortide will be completed, including the Phase 1 clinical trial, if the revenues generated from the sale of the Corporation’s products and its operating expenses do not result in the growth of its Adjusted EBITDA.

Additionally, to the extent the Phase 1 clinical trial using sudocetaxel zendusortide is not halted or cancelled prior to the finalization of the Phase 1 clinical trial, the Corporation has decided that, upon completion of the Phase 1 clinical trial, all future research in oncology, including the pursuit of the development of sudocetaxel zendusortide, will be made through partnership deals. There can be no assurance that a partner will be found or that a partnership agreement will be entered into on terms satisfactory to the Corporation. If a partner is not found, the Corporation may have to halt or cancel this program. The halt or the cancellation of the development of sudocetaxel zendusortide as well as any other research and development activities in oncology will materially adversely affect its pipeline of drug candidates, all of which would materially adversely affect the Corporation’s long-term growth and prospects. The cancellation of the research and development program in oncology could also have a material adverse effect on the price of our Common Share.

 

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Despite the resumption of the Phase 1 clinical trial, the conduct of clinical trials is risky and results may adversely vary from those that are expected. If any data collected from the Phase 1 clinical trial were to demonstrate safety or efficacy issues, the Corporation could halt or cancel the development of its SORT1+ TechnologyTM platform, including sudocetaxel zendusortide, all of which would materially adversely affect its long-term growth and prospects. Furthermore, the value associated to the SORT1+ TechnologyTM platform asset would be depreciated, thereby adversely impacting the market value of the Corporation, including the price of its Common Shares.

The Corporation has filed a sBLA seeking the approval of the F8 Formulation. On January 24, 2024, the Corporation announced that the FDA had issued a CRL to the Corporation with questions largely related to chemistry, manufacturing and controls (“CMC”) concerning the microbiology, assays, impurities and stability for both the lyophilized product and the final reconstituted drug product. The FDA also requested additional information to understand the potential impact of the proposed formulation on immunogenicity risk. Responding to the questions asked by the FDA in the CRL will result in additional expenses to be incurred by the Corporation. There can be no assurance that the Corporation will be able to satisfactorily respond to the questions raised by the FDA in its CRL, nor that the FDA will approve the F8 Formulation when a sBLA is resubmitted. If the F8 Formulation is not approved and commercialized, our revenues and operating results could be adversely affected and the introduction of a biosimilar version of EGRIFTA SV® in the United States market could be facilitated since EGRIFTA SV® is not patent protected. The entry of a biosimilar version of EGRIFTA SV® in the United States market could materially adversely affect the revenues and operating results of the Corporation.

The Corporation has conducted studies to assess the bioequivalence of the F8 Formulation against the original 1 mg/vial formulation of EGRIFTA®. In September 2023, the Corporation filed a sBLA with the FDA seeking the approval of the F8 Formulation for commercial use and, in January 2024, the Corporation received a CRL from the FDA.

The Corporation plans on addressing the questions raised by the FDA in its CRL. To adequately address these questions, the Corporation may have to incur additional expenses. Even if the Corporation addresses all of the questions raised by the FDA and resubmits a sBLA, the FDA could determine that the answers provided are not to its satisfaction and issue another CRL. If the FDA does not approve the F8 Formulation, the Corporation could have to conduct additional testing using the F8 Formulation which would delay the time by which the Corporation could commercialize the F8 Formulation and which would require the Corporation to incur additional expenses and potential inventory write-downs, all of which could adversely affect the Corporation’s revenues, operating results and its potential profitability. Finally, the non-approval of the F8 Formulation would expose the Corporation to the entry of biosimilar versions of EGRIFTA SV® given that the patent protection for this product expired in August 2023. Since the F8 Formulation is patent protected until 2033 in the United States, the commercialization of tesamorelin for the treatment of lipodystrophy using the F8 Formulation could protect the entry of biosimilar versions until the expiry of this patent in 2033. The entry of a biosimilar version of EGRIFTA SV® could materially adversely affect the revenues and operating results of the Corporation.

On March 26, 2021, the Corporation submitted to the FDA a CBE supplement to the Instructions For Use (“IFU”) included in the EGRIFTA SV® product labeling. The FDA responded to our CBE supplement with a CRL on March 15, 2022, asking us to carry out a HFS to ensure that patients reconstitute the product in the proper manner. The Corporation subsequently filed two requests for an extension to file the HFS results. The FDA granted each request, and the Corporation has until September 15, 2024, to file the HFS results. If the Corporation is unable to complete and file the HFS results by that date, or if it is unable to obtain from the FDA an additional extension of time to file the HFS results, the Corporation will be in default under applicable laws. Even if the Corporation files the HFS results by the prescribed deadline set by the FDA, the FDA may not approve the HFS results and may issue an additional CRL. A default by the Corporation to comply with applicable laws could result in sanctions such as the imposition of fines or penalties, all of which could have a material adverse effect on the Corporation’s operating results as well as its reputation. Moreover, the failure to submit the HFS results within the timelines prescribed by the FDA, or the issuance of a CRL based on the rejection by the FDA of the HFS results, could ultimately result in the FDA prohibiting the sale of EGRIFTA SV® in the United States due to the difficulty by patients to administer the right dose of EGRIFTA SV®. If we were unable to commercialize EGRIFTA SV® in the United States, absent the commercialization of the F8 Formulation, our revenues and operating results would be materially affected and would result in a default under the Marathon Credit Agreement.

 

 

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Per the FDA request, the Corporation is required to complete a HFS for EGRIFTA SV® by September 15, 2024. To date, the Corporation has completed the first part of the study, the formative study. The validation study remains to be conducted and the results thereof remain to be filed and accepted by the FDA. If the F8 Formulation had been approved, the Corporation expected to withdraw the CBE and be relieved from the obligation to complete the HFS for EGRIFTA SV® given that the F8 Formulation would have replaced the current formulation of EGRIFTA SV® before the deadline to file the results of the HFS for EGRIFTA SV®. With the F8 Formulation having been subject to a CRL, if the Corporation is unable to complete and resubmit the results of the HFS of EGRIFTA SV® by September 15, 2024, or if the Corporation does not obtain from the FDA an additional extension of time to complete and file the results of such HFS before any prescribed deadline, the Corporation would be in violation of applicable laws which could result in sanctions such as the imposition of fines or penalties. If the results of the HFS are filed in due time but the FDA does not approve the HFS results, the FDA could issue an additional CRL. The failure to complete and submit the HFS results within prescribed timelines, or the issuance of a CRL based on the rejection by the FDA of the HFS results, could ultimately result in the prohibition to sell EGRIFTA SV® in the United States due to the difficulty by patients to administer the right dose of EGRIFTA SV®. Any order issued by the FDA prohibiting the sale of EGRIFTA SV® in the United States would have a material adverse effect on the revenues and results of operations of the Corporation and, absent any material additional revenue-generating products commercialized by the Corporation, would result in a breach of the Marathon Credit Agreement. Any breach of the Marathon Credit Agreement under such circumstances would potentially lead to Marathon foreclosing on all of the assets of the Corporation or the Corporation resorting to insolvency laws.

The conduct of the second part of the study, the validation study, is expected to be costly, the result of which will be to adversely impact the operating expenses of the Corporation and its potential capacity to grow its Adjusted EBITDA as well as becoming profitable. In addition, there can be no assurance that the Corporation will be able to complete the HFS within any timelines prescribed by the FDA since the enrollment of patients in the first part of the HFS proved to be difficult and longer than expected. Furthermore, there can be no assurance that the FDA would grant any additional extension of time to the Corporation to complete and file the results of the HFS for EGRIFTA SV®. If the Corporation in unable to complete the HFS, the Corporation could be in violation of applicable laws and, in addition to the measures described above, the FDA could also impose additional requirements on the Corporation in order to continue its commercialization of EGRIFTA SV® in the United States (to the extent EGRIFTA SV® is not withdrawn from the market). These additional measures could result in additional expenses to the Corporation and could potentially adversely affect its operating results and its capacity to generate a positive Adjusted EBITDA.

The Corporation has decided to seek a partner to conduct a Phase 2b/3 clinical trial evaluating tesamorelin for the treatment of NASH in the general population. Although the Corporation has begun the search for a potential partner and preliminary discussions are ongoing, there can be no assurance that a partner will be found or that a partnership agreement will be entered into on terms satisfactory to the Corporation. If a partner is not found, the Corporation may have to cancel this program unless it has access to substantial financial resources to pursue such development program and there can be no guarantee that the Corporation will secure such substantial resources in an amount sufficient to initiate or complete the Phase 2b/3 clinical trial. Moreover, the FDA has issued comments and asked questions on the revised protocol filed by the Corporation in February 2022 and the Corporation has voluntarily decided not to reply to those comments and questions until it can find a partner. In addition, the Corporation’s decision to design its Phase 2b/3 clinical trial to meet the FDA’s primary endpoints may prevent the Corporation from seeking approval of tesamorelin for the treatment of NASH in the general population from the European Medicines Agency (“EMA”) since the primary endpoint for this agency is different from that of the FDA. If the Corporation is unable to find a partner to develop tesamorelin for the treatment of NASH in the general population or to secure substantial financial resources to do it on its own, the Corporation may cancel this program and the development of tesamorelin for the treatment of NASH may never occur. Even if the Corporation finds a partner, the conduct of the Phase 2b/3 clinical trial may be delayed or never begun if the Corporation is unable to properly address the comments and questions raised by the FDA based on the Corporation’s amended protocol. Finally, if the Corporation is unable to meet the endpoints of its Phase 2b/3 clinical trial, it will not receive approval for tesamorelin for the treatment of NASH in the general population. Even if the Corporation meets the endpoints of the clinical trial, the FDA could issue a conditional approval letter such that if the Corporation is unable to meet the conditions contained in such letter, the Corporation could lose such approval. If the conduct of the clinical trial is cancelled, or if the Corporation does not receive approval for tesamorelin for the treatment of NASH in the general population, its potential long-term revenues, growth and prospects will be materially adversely affected.

 

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In July 2021, we announced that the final Phase 3 clinical trial design would result in higher costs than what we had expected and, as a result, we decided to seek a potential partner to undertake this clinical trial. To date, we are still continuing to seek a partner and discussions are still ongoing.

In February 2022, in order to de-risk the Phase 3 trial, the Corporation submitted an amended protocol to the FDA resulting in the FDA providing us with a list of questions and comments on this amended protocol. We have voluntarily decided not to respond to those questions and comments in order to address them with any potential partner we may find to optimize the design, if deemed relevant. The amended protocol includes a Phase 2b/3 seamless study design where the first 350 or so patients’ data will be analyzed by a data monitoring committee to assess the efficacy of tesamorelin on a smaller subset of patients. The amended protocol would allow us to generate hard endpoint data on NAS score and fibrosis. A decision would then be made whether to continue the study until the full number of patients (1,094) have completed 18 months of treatment. These amendments would not change the total number of patients required to seek accelerated approval of tesamorelin for the treatment of NASH, but it would inform the continuation of enrollment while providing an indication of benefit to patients.

There can be no guarantee that tesamorelin will be studied for the treatment of NASH in the general population if the Corporation is unable to find a partner to conduct the development program on its own. Even if the Corporation finds a partner, the terms and conditions pursuant to which such partner may be interested in assisting the Corporation may not be satisfactory to the Corporation or may be unfavorable. Under such circumstances, the Corporation may decide to forego the development of tesamorelin for the treatment of NASH in the general population or turn to alternative sources of financing. If the Corporation is unable to, or does not proceed with, the development of tesamorelin for the treatment of NASH in the general population, it could have a material adverse effect on its potential long-term revenues, growth and business prospects.

Even if the Corporation finds a partner to initiate a Phase 2b/3 clinical trial, there can be no guarantee that the FDA will be satisfied with the responses to the questions and comments asked in connection with the amendments to the protocol filed in February 2022 and allow the initiation of such trial. Even if the FDA or any other regulatory agency approves the study of tesamorelin for the treatment of NASH in the general population, there can be no guarantee that the results will meet the endpoints of the study and that tesamorelin will be approved for such treatment. Even if the Corporation meets the FDA’s primary endpoints and approval is received from the FDA, such approval may be conditioned on conducting additional studies which, if not conducted or if the results therefrom are not positive on certain clinical outcomes, could result in the FDA withdrawing its approval for the use of tesamorelin for the treatment of NASH in the general population.

The Corporation has decided to design its Phase 2b/3 clinical trial based on the FDA guidelines requiring it to demonstrate “NASH resolution and no worsening of fibrosis” as primary endpoints. This trial design does not follow the current EMA guidelines which require a sponsor to demonstrate both (i) NASH resolution and no worsening of fibrosis and (ii) improvement of fibrosis by one stage without worsening of NASH as primary endpoints. Therefore, even if the Corporation meets the primary endpoints for FDA purposes, the EMA may not approve tesamorelin for the treatment of NASH in this territory since the trial was not designed to demonstrate both endpoints.

If the Corporation is unable to obtain approval of tesamorelin for the treatment of NASH in the United States, this would have material adverse effects on its revenues, financial results and long-term growth and prospects. In addition, even if the FDA approves tesamorelin for the treatment of NASH, the lack of an approval in Europe will limit the Corporation’s ability to maximize its revenue growth potential, therefore potentially hampering its long-term growth and prospects.

 

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The conduct of clinical trials is subject to a variety of risks, many of which can be beyond the control of the Corporation forcing it to delay the initiation or conduct of clinical trials or forego same.

The beginning or completion of clinical trials may be delayed or prevented for several reasons, including, among others: (a) negative results from the Corporation’s clinical trial resulting in a failure to meet the endpoints of its clinical trial; (b) delays in reaching or failing to reach agreement on acceptable terms with clinical study sites, the terms of which can be subject to considerable negotiation and may vary significantly among different study sites; (c) any breach of the terms of any CRO agreement by us or by our third-party suppliers that have responsibility to assist us with the conduct of our clinical trials; (d) inadequate quantity or quality of the active pharmaceutical ingredient or other materials necessary to conduct clinical trials; (e) challenges in recruiting and enrolling patients to participate in clinical trials, such as the proximity of patients to study sites, eligibility criteria to be included in a clinical trial, the nature of a clinical trial and the competition from other clinical study programs for the treatment of similar diseases as those the Corporation may seek to treat; (f) severe or unexpected adverse drug effects experienced by patients; (g) regulatory agencies requiring a sponsor to conduct additional clinical studies prior to approving a new drug application, a sBLA, or the equivalent thereof in other jurisdictions after review of Phase 3 clinical trial results; (h) regulatory agencies may disagree with a sponsor ’s interpretation of data resulting from its Phase 3 clinical trials, or may change the requirements for approval even after they have approved the sponsor’s Phase 3 clinical trial design; and (i) difficulties in retaining patients who have enrolled in a sponsor’s Phase 3 clinical trial but who may be prone to withdraw due to rigours of the clinical trial, lack of efficacy, side effects, personal issues or loss of interest.

In addition, clinical studies may also be delayed or terminated as a result of ambiguous or negative interim results. A sponsor may decide to suspend or terminate its clinical trial, or regulatory agencies could order a sponsor to do so for several reasons, including, among others, failure to conduct the clinical trial in accordance with the regulatory requirements of a sponsor’s study protocol and inspections of the clinical study operations or study sites by regulatory agencies that would reveal deficiencies or violations requiring a sponsor to undertake corrective actions (to the extent any are available).

If the Corporation incurs any delay in the conduct of a clinical trial or decides to suspend or terminate such trial, this could materially adversely affect the business prospects of the Corporation and its potential long-term revenues derived from the potential sale of its drug candidates. Any delay or suspension of a clinical trial may also adversely impact the duration of the protection afforded by the issuance of patents covering the drug candidate subject to such clinical trial and lead to earlier entries of competitors in the market.

Regulatory Risks

The pharmaceutical industry is highly regulated and pharmaceutical companies are subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-kickback Statute and the federal False Claims Act.

Healthcare fraud and abuse regulations are complex, and even minor irregularities can potentially give rise to claims that a statute or prohibition has been violated. The laws that may affect our ability to operate include: (a) the federal healthcare program’s anti-kickback law, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs; (b) federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent; (c) the federal Health Insurance Portability and Accountability Act of 1996, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; (d) the Federal Food, Drug and Cosmetic Act, as amended, of the United States (“FFDCA”) and similar laws regulating advertisement and labeling; and (e) U.S. States’ law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.

 

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In the United States, the federal anti-kickback law has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers or formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce or reward prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Most American states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which apply to items and services covered by Medicaid and other state programs, or, in several states, apply regardless of the payor. Administrative, civil and criminal sanctions may be imposed under these federal and state laws. Further, the Health Care Reform Law, among other things, amends the intent requirement of the U.S. federal anti-kickback and criminal healthcare fraud statutes. A person or entity can now be found guilty under the federal anti-kickback law without actual knowledge of the statute or specific intent to violate it. In addition, the Health Care Reform Law provides that the U.S. government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Possible sanctions for violation of these anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from Medicare and Medicaid programs and forfeiture of amounts collected in violation of such prohibitions. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, financial condition and operating results.

To enforce compliance with the federal laws, the U.S. Department of Justice (“DOJ”) scrutinizes interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Dealing with investigations can be time and resource consuming and can divert management’s attention from the business. Additionally, if a healthcare provider settles an investigation with the DOJ or other law enforcement agencies, we may be forced to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business. Over the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, such as: providing free trips or items and gifts of value to prescribers, “sham” consulting fees and grants and other monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates.

In addition, there has been a recent trend of increased federal and state regulation on payments made to physicians for marketing. Some states, such as California, Massachusetts and Vermont, mandate implementation of commercial compliance programs, along with the tracking and reporting of gifts, compensation and other remuneration to certain healthcare professionals. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may run afoul of one or more of the requirements.

If our activities are found to be in violation of these laws or any other federal and state fraud and abuse laws, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our activities with regard to the commercialization of our products in the United States, which could harm the commercial sales of our products and materially affect our business, financial condition and results of operations. We cannot guarantee that we will be able to mitigate all operational risks. In addition, we cannot guarantee that we, our employees, our consultants or our contractors are or will be in compliance with all potentially applicable U.S. federal and state regulations and/or laws. Because of the far-reaching nature of these laws, we may be required to alter or discontinue one or more of our business practices to be in compliance with these laws. If we fail to adequately mitigate our operational risks or if we or our agents fail to comply with any of those regulations, laws and/or requirements, a range of actions could result, including, but not limited to, the termination of clinical trials, the failure to approve a product candidate, restrictions on EGRIFTA SV®, Trogarzo® or their respective manufacturing processes, withdrawal of EGRIFTA SV® or Trogarzo® from the market, significant fines, exclusion from government healthcare programs or other sanctions or litigation. Such occurrences could have a material adverse effect on our product sales, business and results of operations.

The scope and enforcement of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. U.S. federal or state regulatory authorities might challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, results of operations and financial condition. Any state or federal regulatory review of us or the third parties with whom we contract, regardless of the outcome, would be costly and time-consuming.

 

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We may be subject to enforcement action if we engage in the off-label promotion of EGRIFTA SV® or Trogarzo®.

Our promotional materials and training methods must comply with the FFDCA, as well as with other applicable laws and regulations, including restraints and prohibitions on the promotion of off-label, or unapproved, use. Physicians may prescribe our products for off-label use without regard to these prohibitions, as the FFDCA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if the FDA determines that our promotional materials or training of company employees or agents constitutes promotion of an off-label use, it could request that we modify our training or promotional materials, issue corrective action, or subject us to regulatory or enforcement actions, including but not limited to the issuance of an untitled letter or warning letter, and a judicial action seeking injunction, product seizure and civil or criminal penalties. It is also possible that other federal, state or non-U.S. enforcement authorities might take action if they consider our promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. Our reputation would also be damaged. Although our policy is to refrain from written or oral statements that could be considered off-label promotion of our products, the FDA could disagree and conclude that we have engaged in off-label promotion. In addition, the off-label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention, result in substantial damage awards against us and harm our reputation.

We are not allowed to conduct promotional activities related to EGRIFTA SV® and Trogarzo® in Canada and in Europe since none of those products have been approved in this territory. Promotional activities may begin once a drug is approved by the heath authority of a country.

The research, development, manufacture and marketing of pharmaceutical products are governed by various governmental authorities throughout the world to ensure the efficacy and safety of such products. If we fail to comply with the applicable requirements at any time during the product development process, approval process or commercialization process, we may be subject to administrative or judicial sanctions.

Governmental authorities in the United States, Canada, 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 EGRIFTA SV® and Trogarzo® and any other compound that we may develop. 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. If we fail to comply with the applicable requirements at any time during the product development process, approval process or commercialization process, we may be subject to administrative or judicial sanctions. Sanctions could include, but are not limited to, refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters or other enforcement letters, product recalls, import/export delays, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, and government reimbursement, restitution, disgorgement or civil or criminal penalties. Any sanctions could result in a material adverse effect on our reputation, business, financial condition and operating results.

Risks Related to our Intellectual Property

Our patent protection related to the use of tesamorelin for the reduction of excess abdominal fat in HIV-infected adult patients with lipodystrophy expired in August 2023. Until we can commercialize tesamorelin using the F8 Formulation, the FDA-approved use of tesamorelin for the treatment of lipodystrophy is no longer patent protected and we may face direct competition from biosimilar versions of EGRIFTA SV®. If we face competition from biosimilar products, our revenues are likely to be reduced thus adversely affecting our revenue growth and results of operations.

The use of tesamorelin for the reduction of excess abdominal fat in HIV-infected adult patients with lipodystrophy is no longer patent protected in the United States. Tesamorelin, the active ingredient of EGRIFTA SV®, is no longer patent protected and the formulation of EGRIFTA SV® is not patent protected. If, and when approved, the Corporation will rely on the use of the F8 Formulation to benefit from patent protection until 2033 in the United States in connection with the sale of tesamorelin for the reduction of excess abdominal fat in HIV-infected adult patients with lipodystrophy.

 

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Although we are not aware that a company has filed any biosimilar version of tesamorelin with the FDA, nothing prevents a company from filing with the FDA a biosimilar version of tesamorelin using the same formulation as that of EGRIFTA SV® and to seek the same indication as that of EGRIFTA SV®.

If such a filing was made and the FDA were to approve a biosimilar version of EGRIFTA SV®, we would expect the price of that biosimilar to be lower than that of EGRIFTA SV® and we could have to lower our price in order to be able to compete with such biosimilar. A lower price of EGRIFTA SV® would reduce our revenue and would have an adverse effect on our operating results. Even if we were to introduce the F8 Formulation, such biosimilar version could still be a direct competitor to us, albeit with an older formulation of tesamorelin.

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, trademarks and copyrights or are effectively maintained as trade secrets. We try to protect our intellectual property position by, among other things, filing patent applications and trademark applications related to our proprietary technologies, inventions, improvements and tradenames that are important to the development of our business.

Because the patent and trademark position of pharmaceutical companies involves complex legal and factual questions, the issuance, scope, validity, and enforceability of patents and trademarks cannot be predicted with certainty. Patents and trademarks, if issued, may be challenged, invalidated or circumvented. For example, 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 compounds, 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.

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 management’s 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.

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.

 

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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 EGRIFTA SV® and Trogarzo® or any other drug product we may acquire or in-license 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. For instance, the fact that an entity owns or has rights to use patents pertaining to a subject matter in a country does not guarantee that it is not infringing one or more third-party patents in such country. Therefore, there can be no guarantee that any patent that we own of have rights to will not infringe or violate third-party patents and other third-party intellectual property rights in the country where such patent has been issued.

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-party’s 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 management’s 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 favorable to us, and/or pay damages, including up to treble damages in the United States (for example, if found liable of willful 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 non-exclusive, which could result in our competitors gaining access to the same intellectual property and to compete with us.

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. If we were to challenge the validity of a competitor’s 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 patent’s 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.

Litigation Risks

If we fail to comply with our contractual obligations, undertakings and covenants under our agreements with our commercial partners and third-party service providers, we may be exposed to claims for damages and/or termination of these agreements. Furthermore, if we fail to comply with securities laws and applicable pharmaceutical regulations in connection with the commercialization of our products, we may be exposed to claims for damages, fines, penalties, and other sanctions. Any claims for damages, and/or termination of our material contracts, the imposition of fines or penalties could materially adversely affect the commercialization of EGRIFTA SV® and Trogarzo®, our capacity to generate revenues and management’s attention to the development of our business.

 

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We rely on third-party service providers for distribution and manufacturing activities related to EGRIFTA SV® and Trogarzo® in the United States. Under our agreements with our third-party service providers, we have assumed certain obligations, undertakings and covenants which, if breached by us and not remedied within the agreed upon periods, could expose us to claims for damages and/or termination of these agreements. If we are unable to meet our obligations under any of our agreements with such third-party service providers which results in termination of such agreements, this will materially adversely affect our business, financial condition and operating results since we rely on single third-party service providers, each of whom performing key services for the success of our business plan. Additionally, if such third-party service providers do not meet their obligations under agreements and we decide to litigate any breach or dispute any amount owed under our agreements, this might materially adversely affect our relationship with such third-party services providers which, in turn, could adversely affect our capacity and ability to deliver on our business plan.

As a publicly traded pharmaceutical company we have to comply with securities laws and various laws related to the commercialization of drug products, any violation of which could result in claims for damages and/or the imposition of fines, penalties and other sanctions. If we are subject to claims for damages and/or the imposition of fines, penalties, or other sanctions this could have the effect of diverting management’s attention from the operation of the business, limit the financial resources available to the Corporation to execute its business plan and adversely affect the Corporation’s reputation.

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 our products we may be commercializing, 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 development, manufacture and sale of such products may expose us to potential liability, and the pharmaceutical industry has 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 management’s time and attention and could have a material adverse effect on our financial condition, business and operating results. A product liability claim could also tarnish our reputation, whether or not such claims are with or without merit.

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 the damages resulting from a judgment, in which case our creditors could levy against our assets. We may also be obligated to indemnify our commercial partners and third-party service providers as well as 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 and would have a material adverse effect on our reputation and our financial condition.

Geo-Political Risks

A variety of risks associated with our international business relationships could materially adversely affect our business.

International business relationships in the United States, Europe, Ukraine, the Middle East, China, Taiwan and elsewhere subject us to additional risks, including: (a) disruptions of important government services; (b) differing regulatory requirements for drug approvals in foreign countries; (c) potentially reduced protection for intellectual property rights, including unexpected changes in the rules governing patents and their enforcement; (d) potential third-party patent rights in foreign countries; (e) 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; (f) unexpected changes in tariffs, trade barriers and regulatory requirements; (g) economic weakness, including inflation, or political instability, particularly in foreign economies and markets; (h) compliance with tax, employment, immigration and labor laws for employees traveling abroad and for new talents we may desire to recruit; (i) foreign taxes; (j) 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; (k) workforce uncertainty in countries where labor unrest is more common than in the United States and Canada; (l) production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and (m) business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires, or epidemic such as the one related to the coronavirus.

These and other risks of international business relationships may have a material adverse effect on our business, financial condition and operating results.

 

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Cybersecurity and Data Privacy Risks

We rely extensively on the information technology systems of third-party service providers to store data, such as personal identifiable information, regarding our commercial activities for EGRIFTA SV® and Trogarzo®. Security breaches and other disruptions to those information technology systems could cause a violation of privacy laws, exposing us to liability which could cause our business and reputation to suffer.

In the ordinary course of business, we rely upon information technology and networks, most of which are managed by third parties, to process, transmit and store electronic information to manage and support our business decisions and strategy. We have no control and access over the information technology systems of third-party service providers where most of this information is stored and we are unable to assess whether appropriate measures have been implemented to prevent or limit a security breach of their information technology systems.

We also use our information technology systems to collect and store proprietary data, such as those related to our intellectual property, customers, employees and suppliers.

In connection with our presence in Canada and Europe, we must comply with privacy laws and regulations of Québec and Europe. Both of those laws and regulations introduced data protection requirements relating to the consent of individuals to whom the personnel data relates, the information provided to the individuals, the security we must retain, the security and confidentiality of the personal data, data breach notification and the use of third-party processors in connection with the processing of personal data. These laws have increased the responsibility of all parties collecting personal data. We have reviewed and are currently complementing our in-house policies and related procedures to ensure compliance with those laws. In the United States, there exists no federal laws regarding the protection of personal information and all such laws are State-regulated. With the addition of a sales and medical team in-house, we are in the process of assessing compliance with the privacy laws in each of the States where the bulk of our activities is conducted. However, there can be no guarantee that the Corporation will not be found to violate some of those laws as a result of the combination of our business activities in various jurisdictions and the complexity of those laws and their interpretations.

The secure and uninterrupted operation of third-party information technology systems and of ours is material to our business operations and strategy. More and more businesses are subject to information technology system intrusion for which cyber-terrorists often use ransomware to demand payment of a ransom to allow those businesses to regain access to its data. Despite the measures that we have implemented against unwanted intrusion by third parties, there can be no guarantee that our systems could resist to a cyber-attack. Unauthorized access to data files held in our information technology systems or those of third parties could result in inappropriate use, change or disclosure of sensitive and/or personal data of our customers, employees, suppliers and patients. Any such access, disclosure or other loss of information could subject us to litigation, regulatory fines, penalties or reputational damages, any of which could have a material adverse effect on our competitive position, reputation, business, financial condition and operating results.

Other Risks Related to Our Business

We may require additional funding and may not be able to raise the capital necessary to fund all or part of our capital requirements.

We may need financing in order to fund all or part of our capital requirements to sustain our growth, to develop our marketing and commercial capabilities, and to in-license or acquire approved products. Our business performance may prevent us from generating enough cash-flow to achieve our business plan and the market conditions may also 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 capital by way of public or private offerings in the future. In addition, the conditions precedent to have access to the third and fourth tranches under the Marathon Credit Agreement based on its current terms are not met, and therefore, unless an amendment to the Marathon Credit Agreement is entered into with Marathon, there is no ability to access these tranches. In such a case, we would have to use other means of financing, such as entering into private financing or, with the consent of Marathon, incur additional debt, the terms and conditions of which may not be favorable to us. We currently have no arranged sources of financing available to us. 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.

We depend on our current personnel to pursue our business plan and the loss of our key employees and the inability to attract and hire highly qualified individuals to replace the loss of our current key employees could have a material adverse effect on our business and growth potential.

 

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Because of the specialized nature of our business, our success depends to a significant extent on the continued service of our key employees and on our ability to be able to attract, retain and motivate qualified commercial, medical, regulatory and scientific personnel. We have entered into employment agreements with our executive officers and provided them, as well as to other key employees, with long-term incentives as a retention mechanism, but such agreements and incentives do not guarantee that our executive officers and other key employees will remain employed by us for any significant period of time, or at all. In addition, we have a limited workforce to pursue our business plan and the loss of any of our key employees could materially adversely affect our business. The loss of key account managers and medical science liaison personnel and our inability to attract and retain them could have a material adverse effect on our commercial and medical activities related to EGRIFTA SV® and Trogarzo®, and, accordingly, on our business, financial condition and operating results. In addition, it could adversely affect the market price of our Common Shares.

There is intense competition for qualified personnel in the areas of our activities, and we and our third-party service providers may not be able to continue to attract and retain the qualified personnel necessary for the growth of our business. Our failure and the failure of our third-party service providers to attract and retain such personnel could impose significant limits on our business operations and hinder our ability to successfully and efficiently realize our business plan.

We may not achieve our publicly announced financial, milestones or our commercial objectives on time.

In January 2023, we announced revenue guidance for the fiscal year ended November 30, 2023, in the range of $90 million to $95 million. In July 2023, we revised such revenue guidance to be in the range of $82 million to $87 million. In September 2023, such revenue guidance was tightened to be in the range of $82 million to $85 million. From time to time, we publicly announce the timing of certain events to occur or the attainment of certain commercial objectives. These statements are forward-looking and are based on the best estimate of management at the time, relating to the achievement of such guidance or to the occurrence of such events. However, the actual timing of such events or our ability to achieve these objectives may differ from what has been publicly disclosed. Events such as beginning of commercialization of a product, levels of sales, revenues and other financial metrics may vary from what is publicly disclosed. These variations may occur as a result of a series of events, including problems with a supplier or a commercial partner, change in the procurement policy of a commercial partner or any other event having the effect of delaying the publicly announced timeline or reducing the publicly announced commercial objective. 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 or any variation in the occurrence of certain events having the effect of altering publicly announced commercial objectives could have a material adverse effect on our business, financial condition and operating results. In addition, it could adversely affect the market price of our Common Shares.

In connection with the reporting of our financial results, we are required to make estimates and assumptions, which involve uncertainties and any significant differences between our estimates and actual results could have an adverse impact on our reported financial position, operating results and cash flows.

The preparation of our consolidated financial statements requires that we 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. On an ongoing basis, our management evaluates our critical and other significant estimates and assumptions, including among others, those associated with revenue and sales allowances and chargebacks, realizable value of inventories, estimation of accruals for clinical trial expenses, measurement and recoverability of intangible assets, the measurement of derivative financial assets, and the measurement of share-based arrangements. Any significant differences between our actual results and our estimates and assumptions could negatively impact our reported financial position, operating results and cash flows.

If actual future payments for allowances for discounts, returns, rebates and chargebacks exceed the estimates the Corporation made at the time of the sale of its products, its financial position, results of operations, and cash flows may be negatively impacted.

 

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Pursuant to the Corporation’s accounts and revenue recognition policies, the product revenue recognized quarter over quarter by the Corporation is net of estimated allowances for discounts, returns, rebates and chargebacks, including potential clawbacks in certain jurisdictions when pricing terms are based on temporary use authorizations and thus subject to future negotiations. Such estimates require subjective and complex judgment due to the need to make estimates about matters that are inherently uncertain. Based on industry practice, pharmaceutical companies, including the Corporation, have liberal return policies, sometimes making it difficult to estimate the timing and amount of expected revenues.

A chargeback is the difference between the price the wholesaler pays the Corporation (wholesale acquisition cost) and the price that the wholesaler’s customer pays for the Corporation’s product (contracted customer). The Corporation’s products were subject to certain programs with federal government qualified entities whereby pricing on products is discounted to such entities and results in a chargeback claim to the Corporation, or for the Corporation to bill certain qualifying Public Health Service end-users at government-mandated pricing. To the extent that the Corporation’s sales to discount purchasers, such as federal government qualified entities, increases, chargeback claims will also increase. There may be significant lag time between the Corporation’s original sale to the wholesaler and the Corporation’s receipt of the corresponding government chargeback claims from the Corporation’s wholesalers.

The Corporation’s products are subject to state government-managed Medicaid programs, whereby rebates for purchases are issued to participating state governments. These rebates arise when the patient treated with the Corporation’s products is covered under Medicaid. The Corporation’s calculations require the Corporation to estimate end-user and patient mix to determine which of its sales will likely be subject to these rebates. There is a significant time lag in the Corporation receiving these rebate notices (generally several months after its sale is made). The Corporation’s estimates are based on its historical claims from participating state governments, as supplemented by management’s judgment.

Although the Corporation believes that it has sufficient allowances, actual results may differ significantly from its estimated allowances for discounts, returns, rebates and chargebacks. Changes in estimates and assumptions based upon actual results may have a material impact on its financial condition, results of operations and cash flows. Such changes to estimates will be made to the financial statements in the period in which the estimate is changed. In addition, the Corporation’s financial position, results of operations and cash flows may be negatively impacted if actual future payments for allowances, discounts, returns, rebates and chargebacks exceed the estimates the Corporation made at the time of the sale of its products.

We have identified a material weakness in our internal controls over financial reporting for the fiscal year ended November 30, 2022, in connection with the documentation of the analysis and relating to the monitoring of certain conditions and covenants included in the Marathon Credit Agreement. For the fiscal year ended November 30, 2023, we have remediated such material weakness but there can be no assurance that we will not identify other material weakness in our internal controls over financial reporting for the fiscal year ended November 30, 2024, and beyond. A material weakness may hamper our ability to meet our reporting obligations and could result in a material misstatement in the Corporation’s financial statements. As a result, the trading price of our Common Shares could be negatively affected.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Accordingly, a material weakness increases the risk that we are unable to comply with our reporting obligations and/or that the financial information we report contains material errors. Any of those events could materially adversely affect the trading price of our Common Shares. A failure to comply with our reporting requirements could also subject us to sanctions and/or investigations by securities regulatory authorities.

 

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We have identified a material weakness in our internal controls over financial reporting for the fiscal year ended November 30, 2022, in connection with the documentation of the analysis and relating to the monitoring of certain conditions and covenants included in the Marathon Credit Agreement. This control failure caused ineffective controls over the assessment of going concern uncertainty, including the underlying financial data and assumptions supporting the forecasted financial information utilized to prepare projected cash flows and liquidity requirements to comply with some of the covenants in the Marathon Credit Agreement. The Corporation’s management team has implemented remediation measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented and operating efficiently. While the Corporation succeeded in implementing remediation measures in the fiscal year ended November 30, 2023, there can be no assurance that we will not identify other material weakness in our internal controls over financial reporting for the fiscal year ended November 30, 2024, and beyond. If the Corporation fails to maintain effective internal controls in the future, it could result in a material misstatement of the Corporation’s financial statements, which could cause investors to lose confidence in the Corporation’s financial statements and cause the trading price of its Common Shares to decline.

We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance policies. In addition, we are required under securities laws to report annually on our internal control over financial reporting. We are not currently required, and do not, obtain an audit of our internal controls over financial reporting. Any system of internal controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.

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.

The Corporation’s Common Shares are listed on the Toronto Stock Exchange (“TSX”) and on the U.S. Nasdaq Capital market (“Nasdaq”). The market price of the Common Shares on the Nasdaq and the TSX has fluctuated significantly in the past and the Corporation expects the market prices to continue to fluctuate in the future, and such prices may decline. For example, since the Corporation’s listing of its Common Shares on Nasdaq to December 31, 2023, the Corporation’s closing share price on Nasdaq has ranged from a low of $0.89 to a high of $16.28. Consequently, you may not be able to sell your Common Shares at prices equal to or greater than the price paid by you. In addition, the market price of the Common Shares may be influenced by many factors, some of which are or may be beyond the Corporation’s control, including: actual or anticipated variations in the Corporation’s operating results and/or research and development activities; announcements by the Corporation or the Corporation’s competitors of significant contracts or acquisitions; additions or departures of key personnel; announcement or expectation of additional financing efforts; impairment of assets; changes in accounting principles; changes in the general market and economic conditions; future sales of the Common Shares; the failure of financial analysts to initiate or maintain coverage of the Common Shares, changes in financial estimates by financial analysts, or any failure by the Corporation to meet or exceed any of these estimates, or changes in the recommendations of any financial analysts that elect to follow the Common Shares or the shares of the Corporation’s competitors; and investor perceptions of the Corporation and the industry in which the Corporation operates.

In addition, stock markets, in general, have experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of the Common Shares, regardless of the Corporation’s operating performance. Dual listing of the Common Shares on the Nasdaq and the TSX may increase share price volatility on both exchanges because trading is in the two markets, which may result in less liquidity on both exchanges. In addition, different liquidity levels, volumes of trading, currencies and market conditions on the two exchanges may result in different prevailing trading prices. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has sometimes been instituted against these companies. This litigation, if instituted against the Corporation, could adversely affect the financial condition or results of operations of the Corporation.

The liquidity of our Common Shares is uneven and oftentimes scarce and shareholders desiring to purchase or sell Common Shares could be unable to, if the liquidity in our Common Shares is low.

The volume of Common Shares traded on the TSX and the Nasdaq has been uneven over time and is often low. Therefore, any investor who desires to purchase or sell Common Shares of the Corporation over the TSX or the Nasdaq may be unable to rapidly execute its order and, if the liquidity is low, the price at which such investor may purchase or sell Common Shares may be adversely affected by the lack of trading volume.

 

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Our Common Shares may be delisted from the Nasdaq stock market if the minimum bid price of our Common Shares remains below US$1.00 per share for 30 consecutive trading days. The delisting of our Common Shares could reduce the liquidity in our Common Shares and could trigger a sell-off from U.S. shareholders. Any reduction in the liquidity of our Common Shares or a sell-off of our Common Shares could result in a decline in the price of our Common Shares. Being delisted from the Nasdaq stock market could also adversely affect analysts coverage of our business and prevent us from retaining U.S. investment bankers to raise capital in public offerings.

Under the Nasdaq minimum bid price requirement, the minimum bid price of our Common Shares may not remain below $1.00 per share for 30 consecutive trading days. If such event occurs, the Corporation will receive a deficiency notice providing the Corporation with a 180-calendar day cure period from the date of the notice during which the minimum bid price of the Common Shares will have to be $1.00 or more per share for ten consecutive business days in order to avoid delisting. If, at the expiry of the 180-calendar day cure period, the Corporation has not regained compliance with the minimum bid price requirement, the Corporation could be afforded an additional 180-calendar day cure period, provided that it meets certain conditions.

If the Common Shares of the Corporation are delisted from the Nasdaq stock market, the liquidity in our Common Shares could decrease and investors may have difficulties in buying or selling our Common Shares. In addition, a delisting of our Common Shares on the Nasdaq stock market could trigger a sell-off from current U.S-based shareholders whose internal policies could prevent them from holding securities of companies that are not traded on a U.S. stock market. Any sell-off by these shareholders could result in a material decline in the price of our Common Shares.

Finally, if the minimum bid price of the Common Shares were to be below $1.00 per share for 30-consecutive trading days, there can be no assurance that the cure period provided by Nasdaq rules to regain compliance with the minimum bid price requirement would result in the Corporation regaining compliance with such rules in order to avoid a delisting of the Common Shares. Even if the Corporation was to proceed with a reverse-split of its Common Shares, as performed on July 31, 2023, there can be no assurance that the long term bid price of the Common Shares post reverse-split would meet the minimum bid price requirement of the Nasdaq stock market.

Our revenues and expenses may fluctuate significantly and any failure to meet financial expectations and/or our own financial guidance, if any, 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: (a) the level of sales of EGRIFTA SV® in the United States; (b) the level of sales of Trogarzo® in the United States; (c) supply issues with EGRIFTA SV® or Trogarzo®; (d) default under the terms of the Marathon Credit Agreement; (e) the inability to adequately manage our liquidity; (f) the outcome of any litigation; (g) payment of fines or penalties for violations of laws; (h) foreign currency and/or interest rate fluctuations; (i) the timing of achievement and the receipt of milestone or royalty payments from future third parties; and (j) failure to enter into new or the expiration or termination of current agreements with third parties.

If our quarterly or annual operating results fall below the expectations of investors or securities analysts, or if we need to reduce our financial guidance, if any, 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.

If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, the price of our Common Shares and trading volume may decline.

The trading market for our Common Shares will rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets and our competitors. We do not control these analysts. If securities analysts do not cover our Common Shares, the lack of research coverage may adversely affect the market price of our Common Shares. Furthermore, if one or more of the analysts who do cover us downgrade the target price of our Common Shares or if those analysts issue other unfavorable commentary about us or our business, the price of our Common Shares would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the market and interest in our Common Shares could decrease, which in turn could cause our share price or trading volume to decline and may also impair our ability to expand our business with existing customers and attract new customers.

 

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We do not intend to pay dividends on our Common Shares and, consequently, the ability of investors to achieve a return on their 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 we do not currently intend to do so in the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business. 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 shareholder rights plan and certain Canadian laws could delay or deter a change of control.

Our shareholder rights plan (“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 “Item 10B – Memorandum and Articles of Association Shareholder Rights Plan” for information on our 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. See “Item 10B – Memorandum and Articles of Association Limitations on Rights to Own Securities”.

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.

We are governed by the corporate and securities laws of Canada, which in some cases have a different effect on shareholders than the corporate laws of Delaware, U.S. and U.S. securities laws.

We are governed by the Business Corporations Act (Québec) (“QBCA”) and other relevant laws, which may affect the rights of shareholders differently than those of a company governed by the laws of a U.S. jurisdiction, and may, together with our charter documents, have the effect of delaying, deferring or discouraging another party from acquiring control of the Corporation by means of a tender offer, a proxy contest or otherwise, or may affect the price an acquiring party would be willing to offer in such an instance. The material differences between the QBCA and Delaware General Corporation Law (“DGCL”) that may have the greatest such effect include, but are not limited to, the following: (i) for material corporate transactions (such as mergers and amalgamations, other extraordinary corporate transactions or amendments to the our articles) the QBCA generally requires a two-thirds majority vote by shareholders, whereas DGCL generally requires only a majority vote; and (ii) under the QBCA, holders of 10% or more of our shares that carry the right to vote at a meeting of shareholders can requisition a special meeting of shareholders, whereas such right does not exist under the DGCL. See “Item 10B – Memorandum and Articles of Association Differences in Corporate Law”.

The economic effects of a pandemic, epidemic or outbreak of an infectious disease could adversely affect our operations or the market price of our Common Shares.

Public health crises such as pandemics, epidemics or similar outbreaks, including coronavirus known as “COVID-19”, could adversely impact our operations or the market price of our Common Shares. The extent to which a pandemic, epidemic or outbreak would affect our operations, or the market price of our Common Shares would depend on future developments, including the duration of any such pandemic, epidemic or outbreak and actions to contain or treat any such pandemic, epidemic or outbreak, among others.

 

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Item 4. Information on the Company

A.   History and development of the Company.

Name, Address and Incorporation

Our legal name and commercial name is Theratechnologies Inc. Our head office and principal place of business is located at 2015 Peel Street, 11th Floor, Montreal, Québec, Canada H3A 1T8. Our telephone number is (514) 336-7800. Our website is www.theratech.com. Our agent for service in the United States is CT Corporation System, 28 Liberty Street, New York, NY 10005 (212) 894-8940.

We were incorporated under Part IA of the Companies Act (Québec) (“CAQ”), on October 19, 1993, under the name Theratechnologies Inc. 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. 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. Finally, on June 21, 2011, we amended our articles to give the power to our directors to appoint a number of additional directors equal to 33.33% of the number of directors elected at the last shareholders meeting preceding any appointment.

On February 14, 2011, the CAQ was abrogated and replaced by the QBCA, and companies governed by Part IA of the CAQ such as us became business corporations governed by the QBCA. Accordingly, we did not have to file articles of continuation or amend our existing corporate articles. The QBCA was applicable immediately without having to complete any formalities.

Authorized Share Capital:

We are authorized to issue an unlimited number of Common Shares, without nominal value and an unlimited number of preferred shares, without nominal value, issuable in one or more 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.

Our Common Shares are listed on the TSX under the symbol “TH”, and on the U.S. Nasdaq under the symbol “THTX”.

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.

Recent Developments

Marathon Credit Agreement and Amendments Thereto

On July 20, 2022, we entered into the Marathon Credit Agreement with Marathon providing for a credit facility of up to $100 million available in four tranches of $40 million, $20 million, $15 million and $25 million, respectively. The availability of each tranche is subject to meeting certain conditions. To date, the Corporation has drawn $60 million down from the Marathon Credit Agreement and the Corporation does not meet the conditions precedent to drawdown additional amounts under the Marathon Credit Agreement.

 

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In the last fiscal year ended November 30, 2023, we entered into various agreements with Marathon to amend some of the terms and conditions of the Marathon Credit Agreement.

On February 27, 2023, we entered into amendments to the Marathon Credit Agreement providing for, among other things: the removal of the condition related to the submission to the FDA of the Corporation’s HFS results related to EGRIFTA SV® in order to be able to draw down on the $20,000,000 second tranche under the Marathon Credit Agreement. The amendment was entered into in consideration of the issuance of 5,000,000 common share purchase warrants (“Marathon Warrants”) to Marathon. Each Marathon Warrant then entitled the holder thereof to purchase one Common Share of the Corporation at a price of $5.80 per share (“Exercise Price”) until February 27, 2030. On June 21, 2023, the Corporation drew down on the second tranche of $20,000,000.

On May 15, 2023, we entered into an additional amendment to the Marathon Credit Agreement to lower the minimum net revenue target the Corporation was required to meet in its second quarter of the fiscal year 2023 as part of its obligations.

On July 10, 2023, we entered into an additional amendment to the Marathon Credit Agreement to reduce the amount of liquidity the Corporation had to maintain from $20,000,000 to $14,000,000 from July 10, 2023, to July 21, 2023, and then to $16,000,000 until July 28, 2023.

On July 28, 2023, we entered into further amendments to the Marathon Credit Agreement providing for, among other things, (i) the delivery to Marathon until October 31, 2023, of weekly reports about the Corporation’s liquidity position; and (ii) the amount of liquidity the Corporation had to maintain between various periods of time ranging from July 10, 2023, up to and until October 31, 2023. Beginning on November 1, 2023, the prescribed level of liquidity was set at $20,000,000.

On September 21, 2023, we entered into an amended and restated fourth amendment to the Marathon Credit Agreement which reiterated the amendments agreed to on July 28, 2023, but contained a waiver from Marathon of any default or event of default that may have occurred as a result of the Corporation’s failure to meet the minimum liquidity covenant between July 3, 2023, up to and including July 9, 2023.

On October 13, 2023, we entered into additional amendments to the Marathon Credit Agreement providing for, among other things,: (i) revising the minimum liquidity requirements for all times following October 31, 2023 to be between $15,000,000 and $20,000,000, 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 quarterly Marathon Adjusted EBITDA-based targets instead of quarterly revenue-based targets, beginning with the quarter ending November 30, 2023; and (iii) deleting the prohibition against the Corporation having a going concern explanatory paragraph in the opinion of the independent registered public accounting firm of the Corporation that accompanies the Corporation’s annual report. In consideration of these amendments, the Corporation has agreed to (i) pay an amount equal to $600,000, or 100 basis points calculated on the funded debt as of that day ($60,000,000), over the term of the loan and added to the outstanding principal amount of the funded debt as payment in kind; and (ii) reprice the Exercise Price of the Marathon Warrants to $2.30 from $5.80. Following the Consolidation completed on July 31, 2023, the exercise of four Marathon Warrants and the payment of $2.30 are required to purchase one Common Share of the Corporation, for up to a maximum issuance of 1,250,000 Common Shares.

Reimbursement of 5.75% Convertible Unsecured Senior Notes

On June 19, 2018, the Corporation issued by way of prospectus an aggregate principal amount of $57.5 million of 5.75% convertible unsecured senior notes maturing on June 30, 2023 (“Convertible Notes”). In July 2022, the Corporation bought back and cancelled $30 million principal amount of Convertible Notes through private agreements with certain U.S. Convertible Note holders. On June 30, 2023, the Corporation reimbursed all of the outstanding principal amount of $27.5 million of Convertible Notes.

Share Consolidation

On July 31, 2023, we announced that we had completed the consolidation of the issued and outstanding Common Shares of the Corporation’s share capital on the basis of one (1) post-consolidation share for each four (4) pre-consolidation shares issued and outstanding (“Consolidation”). The Corporation’s Common Shares began trading on the TSX and the Nasdaq on a consolidated basis on that date.

 

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Reorganization of Research & Development Activities

As a result of the weakness in the Company’s net revenues in the first half of Fiscal 2023, the Corporation initiated a reorganization in July 2023, mainly focused on its research and development activities, which is expected to result in annualized savings of at least $5,500,000 for the fiscal year ended November 30, 2024 and beyond. Most of these costs will be associated with headcount reduction and a decrease in the number and scope of research and development projects. As such, the Corporation recorded a charge of $719,000 in the third quarter of Fiscal 2023 to cover severance and other costs. On October 24, 2023, the Corporation announced further changes to its operations that would result in a tapering of research and development activities, which necessitated a reduction of approximately 25 positions. The Corporation expects to realize further recurring yearly savings of approximately $3,500,000 resulting from this reorganization and has recorded an additional restructuring charge of approximately $1,244,000 in the fourth quarter of Fiscal 2023.

Public Offering and Concurrent Private Placement

On October 31, 2023, the Corporation announced the closing of a financing for gross proceeds of $25,000,000. The financing was done by way of prospectus (“2023 Public Offering”) resulting in the issuance of 12,500,000 Common Shares at $1.00 per Common Share (“Offering Price”) and by way of a private placement (“Concurrent Private Placement”) resulting in the issuance of 9,118,184 Common Shares at the Offering Price and of 3,381,816 fully-funded, non-voting subscription receipts exchangeable into Common Shares on a one-for-one basis (“Exchangeable Subscription Receipts”). As part of the Concurrent Private Placement, the Company paid to the subscriber, Investissement Québec, a commitment fee of 1.5%. In connection with the 2023 Public Offering, the Company also granted the underwriter a 30-day option to purchase up to 1,875,000 Common Shares at the Offering Price. This option was partially exercised resulting in gross proceeds of $160,000.

The Exchangeable Subscription Receipts were issued pursuant to and are governed by the Exchangeable Receipt Agreement, dated October 31, 2023 between the Corporation and Investissement Québec (the “Exchangeable Receipt Agreement”). The component of the Concurrent Private Placement in the form of Exchangeable Subscription Receipts is designed to ensure that, following completion of the 2023 Public Offering and the Concurrent Private Placement, Investissement Québec does not have beneficial ownership or control over more than 19.9% of the issued and outstanding Common Shares and, therefore, is not a “control person” within applicable Canadian securities laws (“Exchangeable Condition”). Pursuant to the Exchangeable Receipt Agreement, the Exchange Condition is subject to a number of exceptions, including (i) in the context of a take-over bid, arrangement, merger or similar transaction for the purpose of allowing the holder to participate to such transaction equally and rateably with the shareholders of the Corporation, (ii) in the context of a concurrent sale of Common Shares issued upon the exchange of the Exchangeable Subscription Receipts, or (iii) with the prior approval of the shareholders of the Corporation or TSX. The Exchangeable Subscription Receipts entitle their holder to receive a payment equivalent to any dividend declared on the Common Shares and participate in any rights offering that the Corporation may undertake. In addition, to the extent that the Corporation undertakes certain transactions affecting its Common Shares, such as a stock split, a reverse stock split, a share reclassification or the payment of dividend in shares, requisite adjustments will be made to the Exchangeable Subscription Receipts so that the holder may receive upon exchange thereof the same number of Common Shares that it would have been entitled to receive under the transaction if the Exchangeable Subscription Receipts had been exchanged into Common Shares immediately prior to such transaction.

As part of the Concurrent Private Placement, the Corporation has also entered into an investor rights agreement with Investissement Québec (“Investor Rights Agreement”) pursuant to which Investissement Québec is entitled to nominate one director to the Company’s board of directors and to designate one individual acting as an observer at each meeting of the Company’s Board of Directors for as long as it holds 50% of the Common Shares purchased under the Concurrent Private Placement.

In its prospectus supplement dated October 25, 2023, filed as part of the 2023 Public Offering, the Corporation indicated that it intended to use the net proceeds of the 2023 Public Offering and the Concurrent Private Placement for general corporate purposes, which may include working capital, general and administrative expenses, commercialization expenses, repayment of outstanding debt under the Marathon Credit Agreement, and potential acquisitions or in-licensing of commercial products.

A portion of the Corporation’s working capital will be used to maintain the minimum amount of liquidities, ranging between $15 million and $20 million, that the Corporation is required to maintain at all times under the Marathon Credit Agreement based on the Marathon Adjusted EBITDA thresholds set forth in the Marathon Credit Agreement over the most recently ended four fiscal quarters.

The prepayment of the outstanding principal amount of $40 million loaned to the Corporation under the Marathon Credit Agreement is subject to certain restrictions until July 27, 2024, and no such prepayment is expected to be made by the Corporation before then. Thereafter, any prepayment will be evaluated on prevailing circumstances, including the Corporation’s financial position and opportunities available to the Corporation. Use of proceeds for the purpose of potential acquisitions or in-licensing of commercial products will depend on available opportunities as they may arise.

Capital Expenditure and Divestitures

Since the beginning of the Corporation’s last three financial years, the Corporation has not made any material capital expenditures. However, in its fiscal year ended November 30, 2022, the Corporation incurred capital divestiture amounting to $6.4 million as a result of the acceleration and amortization of its intangible asset relating to rights to commercialize Trogarzo® in Europe following its decision to return all commercialization rights to this product to TaiMed.

 

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Public Takeover Offer

During the last and current financial year, we have not been subject to any public takeover offer by third parties in respect of the Company’s Common Shares and the Company has not made any public offer to any company to purchase such company’s shares.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov).

B.  Business Overview.

Principal Products and Activities

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

Our business strategy is to grow revenues and Adjusted EBITDA from the sale of our existing and potential future assets in North America and to develop a portfolio of complementary products, compatible with our expertise in drug development and our commercialization know-how.

We currently commercialize two approved products for people living with HIV, namely: EGRIFTA SV® and Trogarzo®. In addition to the sale of our products, we are conducting research and development activities and we have a pipeline of investigational medicines in the areas of oncology and NASH.

Our Products and Pipeline

EGRIFTA SV®

Tesamorelin is the active peptide comprising EGRIFTA SV®. Tesamorelin is a stabilized 44 amino acid human growth hormone-releasing factor analogue (“GRF”), 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 protein’s 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. Tesamorelin for injection induces the release of growth hormone which causes a reduction in excess visceral abdominal fat (lipohypertrophy) in HIV-infected adult patients without reducing or interfering with subcutaneous fat, and, as such, has no clinically significant effect on undesired loss of subcutaneous fat (lipoatrophy).

EGRIFTA SV® (tesamorelin for injection) is a new formulation of EGRIFTA® which was originally approved by the FDA in November 2010 and was launched in the United States in January 2011. EGRIFTA SV® was approved by the FDA in November 2018, was launched in 2019 and has now replaced EGRIFTA® in such country. EGRIFTA SV® can be kept at room temperature, comes in a single vial and has a higher concentration resulting in a smaller volume of administration. EGRIFTA SV® is currently the only approved therapy in the United States for the reduction of excess abdominal fat in HIV-infected adult patients with lipodystrophy. We have been commercializing this product in the United States since May 1st, 2014.

Lipodystrophy

Lipodystrophy is characterized by abnormalities in the production and storage of fat. It has two components: lipohypertrophy, and excessive abdominal 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.

 

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In HIV-infected patients, lipodystrophy may be caused by the viral infection itself, the use of ARV therapy (not class-specific), presence of hormonal imbalance (growth hormone) and/or microbiome alteration and chronic inflammation. 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 ARV therapy and markers of disease severity, including higher pre-ARV treatment viral load. Other factors include age, genetics, and gender.

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 (“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.

Trogarzo® (ibalizumab-uiyk)

Trogarzo® (ibalizumab-uiyk) is a CD-4 directed post-attachment HIV-1 inhibitor. Trogarzo® was approved by the FDA on March 6, 2018, and was made commercially available in the United States on April 30, 2018. In the United States, Trogarzo® is indicated for the treatment of HIV-1 infection in heavily treatment-experienced adults with MDR HIV-1 infection failing their current ARV regimen. Trogarzo® was the first HIV treatment approved with a new mechanism of action in more than 10 years. The treatment is administered every two weeks. It is a long-acting ARV therapy that can lead to an undetectable viral load in combination with other ARVs. Since its approval, Trogarzo® was included in the treatment guidelines issued by the International Antiviral Society-United States and the treatment guidelines issued by the U.S. Department of Health and Human Services.

Trogarzo® was also approved by the EMA in September 2019 and is no longer under licence to us in Europe further to our decision to terminate and return to TaiMed our commercialization rights to this product in April 2022. The EMA has since withdrawn the marketing approval of Trogarzo® in Europe. See “Item 4B – Business Overview - Markets – Trogarzo®” of this Annual Report for more information on the return of commercialization rights to TaiMed.

Trogarzo® was developed by TaiMed and pursuant to an amended and restated distribution agreement entered into on March 6, 2017 (as further amended) (“TaiMed Agreement”) we have an exclusive license to commercialize this product in the United States and Canada. See “Item 10C - Material Contracts – TaiMed Agreement” of this Annual Report and refer to Notes 3 and 13 of the Audited Financial Statements for information on the TaiMed Agreement.

Trogarzo® is administered by intravenous infusion as a single loading dose of 2,000 mg followed by a maintenance dose of 800 mg every two weeks after dilution in 250 mL of 0.9% Sodium Chloride Injection, USP. The Trogarzo® loading dose can also be administered as an undiluted intravenous (“IV”) push over 90 seconds, and the maintenance dose can be administered as an undiluted IV push over 30 seconds. See “Item 4B – Business Overview – Our Products and Pipeline – Trogarzo® – Life Cyle” of this Annual Report for information on the life cycle of Trogarzo®.

Mechanism of Action

Unlike other ARV agents, Trogarzo® binds primarily to the second extracellular domain of the CD4 receptor, away from major histocompatibility complex II molecule binding sites. It potentially prevents the HIV virus from infecting CD4+ immune cells while preserving normal immunological function. Trogarzo® is active across all major HIV clades and irrespective of tropism. No drug-drug interactions and no cross-resistance with other ART were noted during the clinical trials nor are expected.

 

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Life Cycle

On October 3, 2022, the FDA approved the 30-second IV Push method of administration for the maintenance dose of Trogarzo® and on December 13, 2023, the FDA approved the IV Push administration of the loading dose of Trogarzo®. IV Push is a method by which the undiluted medication is “pushed” by syringe for faster administration into the body’s circulation and is designed to make Trogarzo® administration easier and more convenient for people with HIV and their health care providers. As a result, we expect that more clinics will be able to initiate new patients to the product and provide ongoing treatment.

On October 13, 2023, the Company announced results from a study evaluating the intramuscular (“IM”) method of administration of Trogarzo®. This study (“TMB-302’), conducted in partnership with TaiMed, enrolled 21 subjects (7 HIV-positive and 14 HIV-negative) to assess the pharmacokinetics, efficacy, and safety of the IM administration of Trogarzo® as compared to the IV infusion. Mean Trogarzo® trough concentrations were greater than 15 µg/mL, suggesting that IM injection was sufficient at maintaining the drug trough concentration above the therapeutic level of 0.3 µg/mL. The mean trough concentrations were comparable between IV infusion and IM injection in HIV-positive subjects. However, the primary endpoint measuring a 90% confidence interval of the ratio of IM injection to IV infusion (0.69, 1.08) did not meet the equivalence limits (0.8, 1.25). Viral suppression, a key secondary clinical endpoint, was maintained in all HIV-positive subjects throughout the IM phase and the overall study. Each study subject received IM maintenance doses for eight weeks of treatment and a total of 152 IM injections were administered, which were well tolerated. One subject reported injection-site pruritus (itching) at a single time point, and no subjects reported injection-site pain when Trogarzo® was administered intramuscularly.

The Corporation has now completed the study of the use of the IM method of administration of Trogarzo® and on January 2, 2024, we announced the filing of a sBLA with the FDA seeking approval of the IM method of administration for maintenance doses of Trogarzo®. We are currently awaiting a Prescription Drug User Fee Act (“PDUFA”) date.

Research and Development Activities

In addition to the sale of our products, we are conducting research and development activities. We have established a promising pipeline of investigational medicines in areas of high unmet need, including oncology and NASH. In previous years, we have also worked on extending the lifecycle of tesamorelin and ibalizumab-uiyk. With respect to the latter, we improved the method of administration of both the loading dose and the maintenance dose by obtaining approval of an IV Push method of administration and we have filed a sBLA with the FDA seeking the approval of an IM method of administration of the maintenance dose.

Lifecyle Management of Tesamorelin in Lipodystrophy

F8 Formulation

On September 25, 2023, the Company announced the filing of a sBLA with the FDA seeking the approval of the F8 Formulation. On January 23, 2024, the Company received a CRL from the FDA. The questions outlined in the CRL are largely related to chemistry, manufacturing and controls concerning the microbiology, assays, impurities and stability for both the lyophilized product and the final reconstituted drug product. In addition, the FDA requested further information to understand the potential impact of the proposed formulation on immunogenicity risk. The Company will address the FDA’s questions and intends to pursue the approval of the F8 Formulation. To that end, the Company has requested a Type A meeting with the FDA to ensure that its approach is aligned with the FDA expectations.

The F8 Formulation is eight times more concentrated than EGRIFTA® and two times more concentrated than the current F4 formulation sold under the trade name EGRIFTA SV®. The Company plans to withdraw EGRIFTA SV® from the market if and when the F8 Formulation is approved by the FDA. The F8 Formulation can be kept at room temperature, comes in a single vial and has a higher concentration resulting in a smaller volume of administration than EGRIFTA SV®. The F8 Formulation has the distinct advantage of requiring a single reconstitution per seven days of daily therapy.

 

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Once approved, the F8 Formulation could be used in our proposed Phase 2b/3 clinical trial studying tesamorelin for the treatment of NASH in the general population.

EGRIFTA SV®

Following the launch of EGRIFTA SV® in the United States in 2019, the Company received a number of complaints from patients relating to the reconstitution of EGRIFTA SV®. In March 2021, the Company proactively decided to submit to the FDA a CBE supplement to the IFU included in the EGRIFTA SV® product labeling and, per the timelines set forth in the regulation. The Company implemented these changes, which included an amended IFU. We also provided patients with detailed training through our call center, THERA Patient Support®, related to the changes. The FDA responded to our CBE supplement with a CRL asking us to carry out a HFS to ensure that patients reconstitute EGRIFTA SV® in the proper manner. To date, the Company has completed the first part of the HFS, the formative study. The validation study remains to be conducted and the results thereof remain to be filed and accepted by the FDA. The Company has until September 15, 2024 to submit the HFS results to the FDA. The Company intends to apply for an extension of this deadline.

Multi -Dose Pen Injector

In the fiscal year 2021, we began developing a device in the form of a pen for the administration of tesamorelin. This pen was intended to be used in conjunction with the F8 Formulation. To date, its development is not completed, and we have halted all activities in relation to the development of this device.

Tesamorelin for NASH in the General Population

On September 10, 2020, we announced our intent to study tesamorelin for the potential treatment of NASH in the general population using the F8 Formulation. In November 2020, we filed an Investigational New Drug Application (“IND”) with the FDA for a Phase 3 clinical trial evaluating tesamorelin for the treatment of NASH and we received a “Study May Proceed” letter for such Phase 3 clinical trial from the FDA in December 2020. The letter contained a recommendation that the Company requests a meeting to discuss the questions and comments contained in such letter to address certain aspects of the proposed trial design to ensure alignment with the agency’s expectations with NASH trials. The Company followed up on the FDA’s recommendation and requested a meeting with the agency.

The finalized trial design is planned for a multicenter, randomized, double-blind, placebo-controlled two-part study designed to evaluate the safety and efficacy of tesamorelin in liver-biopsy confirmed patients with NAS score of at least 4 and stage 2 or 3 fibrosis. Part 1 of the study will include a total of approximately 1,100 patients (1:1, tesamorelin:placebo), including approximately 75 to 100 people living with HIV. A second liver biopsy will be performed after the first approximately 1,100 participants have completed 18 months of treatment. This should form the basis for filing a sBLA with the FDA. The clinical trial will also include a futility analysis that would be conducted after the first approximately 400 patients have completed 18 months of treatment and have received a second liver biopsy. The futility analysis will provide a perfunctory review indicating if an early treatment effect with tesamorelin has been observed and will determine if the study should proceed as planned. Following a potential sBLA approval, Part 2 of the trial will continue to enroll an additional approximately 1,800 patients (3:1, tesamorelin:placebo) to continue to measure clinical outcomes over a period of five years. A total of approximately 2,900 patients are expected to be enrolled.

In July 2021, after completion of our discussions with both the FDA and EMA with respect to this trial, we announced that the final Phase 3 clinical trial design would result in higher costs than what we had expected and, as a result, we were assessing our options to best execute this program, including seeking a potential partner.

In order to de-risk the Phase 3 trial, in February 2022, the Company submitted an amended protocol to the FDA resulting in the FDA providing us with a list of questions and comments on this amended protocol. We have voluntarily decided not to respond to those questions and comments in order to address these with any potential partner we may find to optimize the design, if deemed relevant. The amended protocol includes a Phase 2b/3 seamless study design where the first 350 or so patients’ data will be analyzed by a data monitoring committee to assess the efficacy of tesamorelin on a smaller subset of patients. The amended protocol would allow us to generate hard endpoint data on NAS score and fibrosis. A decision would then be made whether to continue the study until the full number of patients (1,094) have completed 18 months of treatment. These amendments would not change the total number of patients required to seek accelerated approval of tesamorelin for the treatment of NASH, but it would inform the continuation of enrollment while providing an indication of benefit to patients.

 

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Currently, we continue to pursue potential NASH partners in the marketplace. We continue to maintain that the further development of tesamorelin allows the Company to keep its positioning as one of the few options for drug developers to immediately partner with a company in order to launch a Phase 2b/3 NASH clinical trial.

Oncology

SORT1+ TechnologyTM Platform

SORT1+ TechnologyTM is the name we gave our platform that provides for the development of new proprietary peptides for cancer drug development targeting SORT1 receptors. SORT1 is a receptor that plays a significant role in protein internalization, sorting and trafficking. It is highly expressed in cancer cells compared to healthy tissue making it an attractive target for cancer drug development. Expression has been demonstrated in, but not limited to, ovarian, triple-negative breast, endometrial, skin, small cell and non-small cell lung, colorectal and pancreatic cancers. Expression of SORT1 is associated with aggressive disease, poor prognosis and decreased survival. Preliminary assessments have demonstrated that the SORT1 receptor is expressed in 40% to 90% of cases of endometrial, ovarian, colorectal, triple-negative breast and pancreatic cancers.

The Corporation’s PDC generated through the SORT1+ TechnologyTM demonstrate distinct pharmacodynamic and pharmacokinetic properties that differentiate them from traditional chemotherapy. In contrast to traditional chemotherapy, our proprietary PDCs are designed to enable selective delivery of certain anti-cancer drugs within the tumor microenvironment, and more importantly, directly inside SORT1 cancer cells. Commercially available anticancer drugs, like docetaxel, doxorubicin, SN38 or tyrosine kinase inhibitors are conjugated to our peptide to specifically target SORT1 receptors. This could potentially improve the efficacy and safety of those agents.

In preclinical data, the Corporation’s lead investigational PDC, sudocetaxel zendusortide, derived from our SORT1+ TechnologyTM, has shown to improve anti-tumor activity and reduce neutropenia and systemic toxicity compared to traditional chemotherapy. Additionally, in preclinical models, sudocetaxel zendusortide has shown to bypass the multidrug resistance protein 1 (MDR1; also known as P-glycoprotein) and inhibit the formation of vasculogenic mimicry - two key resistance mechanisms to chemotherapy treatment. Sudocetaxel zendusortide combines our proprietary peptide and the cytotoxic drug, docetaxel.

We acquired the SORT1+ TechnologyTM platform following the acquisition of all of the issued and outstanding shares of Katana BioPharma Inc. (“Katana”) on February 25, 2019 (“Katana Agreement”). Katana had the exclusive worldwide rights, through a royalty-bearing licence agreement entered into with Transfert Plus, LP (“Transfert Plus”), to a technology platform using peptides as a vehicle to specifically deliver cytotoxic agents to sortilin receptors, which are overexpressed on cancer cells (“Transfert Plus License Agreement”). Katana has since been wound up into Theratechnologies and we became a party to the Transfer Plus License Agreement. See “Item 10C – Material Contracts – Katana Agreement” of this Annual Report and Note 13 of the Audited Financial Statements for information regarding the Katana Agreement and “Item 10C – Material Contracts – Transfert Plus License Agreement” of this Annual Report and Note 13 of the Audited Financial Statements for information regarding the Transfert Plus License Agreement.

We are no longer conducting research and development work on TH1904, one of our other investigational PDCs. However, we continue the conduct of research and development activities on other PDCs.

 

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Sudocetaxel Zendusortide Phase 1 Clinical Trial

In March 2021, we initiated a Phase 1 clinical trial evaluating sudocetaxel zendusortide for the treatment of cancers where the sortilin receptor is expressed. The Phase 1 clinical trial design included a Part A dose escalation study to evaluate the safety, pharmacokinetics, maximum tolerated dose (“MTD”) and preliminary anti-tumor activity of sudocetaxel zendusortide administered once every three weeks in patients with advanced solid tumors refractory to available anti- cancer therapies. Part B of the Phase 1 clinical trial, also known as the “basket trial” initially consisted in recruiting a total of approximately 70 patients to study the safety and tolerability of sudocetaxel zendusortide in the following various solid tumor types, including HR+ breast cancer, triple negative breast cancer, ovarian cancer, endometrial cancer, melanoma, thyroid cancer, small cell lung cancer, and prostate cancer. As per the study protocol, the MTD is established once a significant adverse event is observed in two or more patients.

Part A of the Phase 1 clinical trial was completed in the summer of 2022. We then reported that a total of 18 heavily pre-treated patients, who received an average of eight prior cancer treatments, were enrolled in the dose escalation portion of the study. Following the safety observations at 420 mg/m2 including grade 3 neuropathy, grade 4 neutropenia, grade 3 ocular changes (visual acuity, keratitis and ocular surface dryness) and grade 2 skin toxicities (rash, pruritis and inflammation), the dose of sudocetaxel zendusortide was decreased to 300 mg/m2 for the next dose level and was expanded to a total of six patients. No dose limiting toxicity (“DLT”) were observed during the first cycle, therefore, the dose of 300 mg/m2 was selected for continuation of the basket trial.

In addition, we reported that 300 mg/m2 appeared to be a well-tolerated dose level. We further reported the observation of signs of efficacy in three heavily pretreated patients.

In Part 2 of the Phase 1 clinical trial (basket expansion), the 300mg/m2 dose (given every 3 weeks) was further explored and we enrolled an additional 18 patients. In December 2022, after consulting with our investigators, we decided to voluntarily pause the enrollment of patients and revisit the study design of our clinical trial studying sudocetaxel zendusortide in various types of cancer. The efficacy results observed were not convincing enough to pursue the further enrollment of patients at this dose level and did not outweigh the adverse events seen in some patients.

Following the voluntary pause, the Company formed a Scientific Advisory Committee to help determine the best developmental path forward for sudocetaxel zendusortide which led to the filing of an amended protocol with the FDA.

On June 2, 2023, we announced the FDA’s agreement to our amended Phase 1 trial protocol for sudocetaxel zendusortide following the submission of such amended protocol. The amended protocol is designed to improve the therapeutic window of sudocetaxel zendusortide and extend its duration of therapy. The amended protocol includes a change in the frequency of administration to weekly dosing and a narrowing of the patient population to focus on those with high-grade serous ovarian cancer, including high-grade peritoneal or fallopian tube cancer, or high-grade endometrioid cancer - a population in which preliminary efficacy has been observed thus far and has known high SORT1 expression. Patient selection has also been refined to focus on those who are less heavily pretreated, with no more than one taxane failure and a maximum of eight prior cancer treatment regimens.

The amended protocol is a modified 6+6 design with two different dosing regimens that are within the efficacious range for sudocetaxel zendusortide: 1.75 mg/kg on days 1, 8, and 15 of a 28-day cycle (similar to 210 mg/m2 every 3 weeks) and 2.5 mg/kg on the same schedule (similar to 300 mg/m2 every 3 weeks). A minimum of six patients will be enrolled at the 1.75 mg/kg dose followed by an observational period of three months to assess DLT. If deemed safe (0 or 1 DLT), the trial will enroll an additional six patients at the 2.5 mg/kg dose. Following a second three-month observational period, four more patients will be enrolled at the higher dose, for a total of 16 patients in Part 3 of the trial. The amended protocol also includes an option for a basket expansion stage that will comprise patients with selected, difficult-to-treat tumor types in which sudocetaxel zendusortide has shown activity.

To date, all six patients forming part of the first cohort of patients to receive sudocetaxel zendusortide have been enrolled.

Consistent with the Company’s objective of generating positive Adjusted EBITDA, the Company has announced that any new investments in the research and development activities pertaining to its SORT1+ Technology, including the conduct of its Phase 1 clinical trial would be stage-gated and the Company has allocated a budget of approximately $4.8 million to carry out research and development activities in the field of oncology for the fiscal year 2024. In addition, Theratechnologies is currently reaching out to pharmaceutical companies to pursue the development of sudocetaxel zendusortide once the Phase 1 clinical trial will have been completed.

Since announcing our decision to voluntarily pause the enrollment of patients in our Phase 1 clinical trial studying sudocetaxel zendusortide in various types of cancer, partnership discussions in Greater China regarding the development and commercialization of sudocetaxel zendusortide have been paused as well.

 

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Markets

EGRIFTA SV®

EGRIFTA SV® is solely commercialized in the United States and almost all of the Company’s revenues are generated from one customer, McKesson (as defined below). Total revenues generated by the Company for the sale of EGRIFTA SV® in the United States amounted to $53.7 million, $50.4 million and $43.0 million for each of the fiscal years ended November 30, 2023, 2022, and 2021, respectively. Prior to November 2019, the date on which EGRIFTA SV® became commercially available in the United States, EGRIFTA® was also commercialized in the United States and Canada. However, EGRIFTA® is no longer offered for sale in the United States since being replaced by EGRIFTA SV® in the 2020 fiscal year. We also discontinued the sale of EGRIFTA® in Canada in October 2022.

In November 2022, we entered into an agreement with foreign distributors providing them with the exclusive right to distribute EGRIFTA SV® under named patient programs only in various countries based in the regions of Latin America, Middle East, North Africa and Turkey and Central and Eastern Europe. This agreement has a five-year term. The exclusive distributors have no minimum purchase obligations but have to buy and pay EGRIFTA SV® in U.S. denominated dollars at a discount to the current list price in the United States or at a discount to the price at which they are entitled to sell it in a country under the named patient program of such country. This agreement contains restrictive covenants regarding the sale of competitive products to EGRIFTA SV®. In July 2023, we also entered into an agreement with a foreign distributor providing it with the exclusive right to distribute EGRIFTA SV® under named patient programs in various countries based in Western Europe, Nordic Region and the United Kingdom.

Trogarzo®

Since the last fiscal year, Trogarzo® is solely commercialized in the United States. For the fiscal years ended on November 30, 2022 and 2021, Trogarzo® was also commercialized in certain European countries. Total revenues generated by the Company from the sale of Trogarzo® in the United States amounted to $28.0 million, $29.6 million and $26.8 million for each of the fiscal years ended November 30, 2023, 2022 and 2021, respectively. Revenues generated from the sale of Trogarzo® in certain European countries for the fiscal years ended November 30, 2022 and 2021 amounted to $1.3 million and $1.5 million, respectively.

In Canada, we are responsible, but under no obligation, to seek the approval of Trogarzo® from Health Canada. No filing seeking the approval of Trogarzo® has been made in Canada and to date, it is unlikely that a filing seeking the approval of Trogarzo® in Canada will be made.

Prior to December 15, 2022, the TaiMed Agreement provided us with the exclusive rights to commercialize Trogarzo® in the European Union countries and in certain additional European countries (“European Territory”). Trogarzo® was then commercially available in the European Territory through our European subsidiary, Theratechnologies Europe Limited, until December 15, 2022, the effective date on which all of our commercialization rights to Trogarzo® were returned to TaiMed under the TaiMed Agreement. Since our decision to return to TaiMed our commercial rights to Trogarzo® in the European Territory, we have ceased all activities related to the commercialization of this product in the various European countries in which such activities were ongoing. The EMA has since withdrawn the marketing approval of Trogarzo® in Europe.

Seasonality

As a specialized biopharmaceutical company, the Company views none of its commercial and research and development activities as subject to seasonal variations.

Manufacturing

Today, we are not aware of material sourcing issues or pricing volatility of raw materials, however, we no longer have a long-term supply agreement for SWI for EGRIFTA SV®. See “Item 3D – Risk Factors – Risks Related to the Commercialization of Our Products”.

 

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EGRIFTA SV®

We do not own or operate manufacturing facilities for the production of EGRIFTA SV® and tesamorelin, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on third-party service providers, i.e. Bachem and Jubilant to manufacture and supply all of our required raw materials, drug substance and drug product for sales of EGRIFTA SV®. We will rely on LSNE for the manufacture of the F8 Formulation if and when approved.

Active Pharmaceutical Ingredient

On July 31st, 2023, we signed a manufacturing and supply agreement with Bachem (“Bachem Agreement”) relating to the manufacture and supply of the active pharmaceutical ingredient of tesamorelin (“API”) for EGRIFTA SV®. Bachem is our only approved manufacturer for the API to date.

Finished Product

We have an agreement with Jubilant providing for the manufacture and supply of the finished form of EGRIFTA SV® for commercial sale in the United States and for tesamorelin in connection with clinical trials (“Jubilant Agreement”). Under the Jubilant Agreement, Jubilant must fill vials with tesamorelin, lyophilize it, label and package those vials and deliver them to locations in accordance with our instructions.

We have an agreement with LSNE, providing for the manufacturing and commercial supply of the F8 Formulation with an effective date of May 11, 2020.

The Corporation also provides patients with the administration boxes which include the necessary supplies to administer the product. These administration boxes are comprised of alcohol swabs, syringes, needles and water for injection. The packaging of these administration boxes for EGRIFTA SV® is done through Sharp Packaging Services, LLC (“Sharp”) and will be done through Almac Pharma Services LLC (“Almac”) for the F8 Formulation if and when approved.

Trogarzo®

TaiMed is our sole supplier of Trogarzo®. TaiMed does not currently own or operate any manufacturing facilities for the production of Trogarzo® and has subcontracted the manufacture of Trogarzo® to WuXi in China, and to Samsung, in South Korea.

Sudocetaxel Zendusortide

Active Pharmaceutical Ingredient

We do not own or operate manufacturing facilities for the production of sudocetaxel zendusortide nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently have an agreement with STA Pharmaceutical Hong Kong Limited (“STA”) providing for the manufacture of our peptide (TH19P01) and to produce sudocetaxel zendusortide.

Finished Product

We rely on Piramal Pharma Solutions, Inc. (“Piramal”) to manufacture the finished form of sudocetaxel zendusortide as vials of sterile solution for injection. The vials are then shipped to Sharp Clinical Services, LLC, with whom we have an agreement for the labelling and packaging of the vials for clinical trials.

 

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Distribution Channels

EGRIFTA SV®

In connection with the commercialization of our products in the United States, we have entered into various agreements with third-party service providers to distribute our products to patients. The distribution of EGRIFTA SV® is tightly controlled and is only available through certain selected pharmacies. Below is a summary of our agreements entered into with our third-party service providers forming part of the supply chain of EGRIFTA SV®.

Logistics Service Provider and Distributor

On November 1, 2017, we entered into an amended and restated master services agreement with RxC Acquisition Company, LLC, doing business as RxCrossroads by McKesson and subsequently assigned to McKesson Specialty Care Distribution LLC (“McKesson”) along with two amended and restated statements of work (collectively, “McKesson Agreement”). Under the terms of the McKesson Agreement, McKesson acts as our exclusive third-party logistics service provider for all of our products in the United States and as such, provides us with warehousing and logistical support services, including inventory control, account management, customers support, product return management and fulfillment of orders.

Under the McKesson Agreement, McKesson also acts as our exclusive third-party distributor of our products in the United States. In such role, McKesson purchases products from us and takes title thereto. McKesson’s purchases of our products are triggered by its expectations of market demand over a certain period of time. McKesson fulfills orders received from authorized wholesalers and certain authorized specialty pharmacies and, with respect to EGRIFTA SV®, delivers it directly to that authorized wholesaler’s client, namely a specialty pharmacy forming part of our network of specialty pharmacies, or directly to those authorized specialty pharmacies.

Wholesalers

Our supply chain of EGRIFTA SV® in the United States is comprised of a limited number of wholesalers through which specialty pharmacies we have contracted with can order EGRIFTA SV®. These wholesalers accept purchase orders from those specialty pharmacies, purchase EGRIFTA SV® from McKesson, and resell this product to these specialty pharmacies. Our wholesalers do not handle the physical delivery of EGRIFTA SV®. The shipping and delivery of EGRIFTA SV® to those specialty pharmacies is handled by McKesson.

Specialty Pharmacies

We have entered into agreements with various specialty pharmacies across the United States providing them with the right to order EGRIFTA SV® from our authorized wholesalers and distribute EGRIFTA SV® to patients in the United States through their networks of local pharmacies. In addition, a limited number of those specialty pharmacies are authorized to purchase EGRIFTA SV® directly from McKesson for their own retail specialty pharmacy stores.

Trogarzo®

Logistics Service Provider and Distributor

McKesson also acts as our exclusive third-party logistics service provider and exclusive third-party distributor for Trogarzo® in the United States under the McKesson Agreements. Orders for Trogarzo® are made directly by a limited number of specialty pharmacies and specialty distributors and delivery of Trogarzo® is made directly to those specialty pharmacies and specialty distributors by McKesson.

Specialty Pharmacies and Distributors

We have entered into agreements with specialty pharmacies, specialty distributors, and infusion therapy providers that have a large U.S. network capable of handling drug products whose administration is made intravenously. These specialty pharmacies and specialty distributors have the capacity to deliver Trogarzo® to patients, physicians or infusion centers. Each of those specialty pharmacies and specialty distributors purchase Trogarzo® from McKesson and deliver it to infusion centers, physicians or patients for home-infusion. Specialty pharmacies and specialty distributors may not purchase Trogarzo from our wholesalers. Patients are administered Trogarzo® at infusion centers, at physicians’ offices or at home with the assistance of nurses.

 

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Marketing

Our marketing and sales activities in the United States for EGRIFTA SV® and Trogarzo® are conducted from our head office in Montreal, Québec, Canada. We have also retained the services of Syneos Health (“Syneos”), a third party service provider, to assist us with market access and reimbursement activities in the United States. The market access and reimbursement teams provided by Syneos are solely dedicated to our products. Syneos is a recognized provider of services around the globe. We have renewed our agreement with Syneos and we entered into an amendment to our amended and restated master service agreement in this respect effective as of December 1, 2021 (“Syneos Agreement”) pursuant to which Syneos will continue providing us with certain services in connection with the commercialization of EGRIFTA SV® and Trogarzo® in the United States until November 30, 2024.

We have contracted with Asembia, LLC (“Asembia”) for the provision of services related, amongst other things, to a call center. The call center, THERA Patient Support®, guides physicians and patients through the process of initiating treatment under reimbursement. This process, which can be complex and time-consuming, begins with a referral and concludes with the final reimbursement decision. THERA Patient Support® also helps patients adhering to their treatment and answering questions about our products.

Intellectual Property

We recognize the significance of safeguarding our business through the protection of patents and trade secrets. Our prosperity is contingent, in part, on our capacity to secure robust patents, maintain the confidentiality of trade secrets, and operate without violating the proprietary rights of others. The success of products integrating our technologies may hinge, to some extent, on our ability to secure effective patent protection.

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:

 

   

where practicable, file patent applications for any new and patentable invention, development or improvement in the United States and in other countries where we deem patent protection to be of value;

 

   

prosecute all pending patent applications in conformity with applicable patent laws and in a manner that efficiently covers our activities;

 

   

file trademark applications in countries of interest for our trademarks;

 

   

register domain names whose addresses include our trademark names; and

 

   

maintain our intellectual property rights by paying government fees as may be necessary to ensure such rights remain in force.

The Company relies on multiple patents related to tesamorelin, the active ingredient of EGRIFTA SV® in the United States and in other countries. For instance, the F8 Formulation is patent protected in the United States until 2033. We also have additional patents in the United States covering tesamorelin for the treatment of NASH scheduled to expire in 2040. Moreover, our PDCs stemming from our licensed SORT1+ Technology platform are also patent protected in the United States and other countries and patent applications are pending in various countries.

Moreover, the Company depends on trade secrets and know-how to sustain our competitive standing. The management of the disclosure and utilization of our know-how and confidential information is governed by agreements with the relevant parties.

 

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Apart from the patents and trade secrets, the Company relies on specific licensing agreements which are essential to maintain our commercial and R&D activities, namely:

 

   

The distribution and marketing agreement with TaiMed granting the Company the exclusive right to market Trogarzo® in Canada and in the United States.

 

   

The licensing agreement with Katana granting the Company a worldwide exclusive license to use and develop the SORT1+ Technology Platform.

 

   

The licensing agreement with the Massachusetts General Hospital (“MGH”) for the development of tesamorelin for the potential treatment of NASH in the general population.

Competition

EGRIFTA SV®

We are not aware of other GRF products indicated for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy being commercialized. However, we are aware that we face indirect competition for EGRIFTA SV® from other drugs, such as human growth-hormone, testosterone, insulin sensitizing agents, GLP-1 receptor agonists and sermorelin that may be prescribed by physicians. To our knowledge, the use of these other drugs for the reduction of excess abdominal fat in HIV-infected adult patients with lipodystrophy has not been proven nor approved by the FDA. Other approaches to reduce excess abdominal fat include coping mechanisms such as lifestyle modification (diet and exercise), switching ARV therapy, or liposuction.

Trogarzo®

Fostemsavir and Lenacapavir are direct competitors to Trogarzo®. Contrary to Fostemsavir which is administered orally twice per day, Trogarzo® is a long-acting ARV that only needs to be administered intravenously every two weeks. Like Fostemsavir, Lenacapavir’s indication for use targets the same patient population as that of Trogarzo®. Lenacapavir is administrated subcutaneously once every six months. In addition, we are aware of other agents including, but not limited to, dolutegravir and darunavir, that are either indicated or commonly used in combination in regimens for the treatment of heavily treatment-experienced patients with MDR HIV-1.

Tesamorelin for the Treatment of NASH in the General Population

There exists no approved medicine for the treatment of NASH. However, there are various compounds currently being studied for the treatment of this disease, some of which are already in Phase 3 clinical trials. These compounds have different mechanisms of action to treat different aspect of the disease, either fat accumulation or inflammation. Tesamorelin has a unique mechanism of action targeting liver fat. However, it has been shown that tesamorelin also improved inflammatory markers. Tesamorelin also benefits from a good safety profile based on more than ten (10) years of use. The development of tesamorelin for the treatment of NASH, if successful, may compete with many potential other drugs for this patient population and we expect strong competition among those companies that will have succeeded in developing and commercializing a medicine for this disease.

SORT1+ TechnologyTM Platform in Oncology

The development of novel treatments in oncology is competitive. Many companies are investing in the development of innovative cancer treatments or in finding a cure for cancer. Most of those companies have significant means and scientific experience. Some of those companies are at more advanced development stage of their drugs than us. In addition, there exists many drug candidates, such as antibody drug conjugates aimed at a variety of potential targets: some treatment will aim at focusing on one particular cancer type whereas others, like our PDCs, could be used in various types of cancers. Our Phase 1 clinical trial studying sudocetaxel zendusortide in various types of cancer was voluntarily paused and was resumed in June 2023 for the potential treatment of ovarian cancer. Even if successful, by the time we enter the market, there may be approved medicines that would directly compete with sudocetaxel zendusortide or any other PDCs we may develop.

 

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Government Regulations

The text below explains some of the most important features of government regulations that we must follow in connection with the commercialization of EGRIFTA SV® and Trogarzo® in the United States.

Sales and Marketing Regulation - United States

We are subject to various United States requirements relating to the sales and marketing of EGRIFTA SV® and Trogarzo® in the United States. The FDA regulates all advertising and promotional activities for prescription drug products under its jurisdiction both prior to and after approval. EGRIFTA SV® and Trogarzo® may be promoted only for their approved indications and in accordance with the provisions of their approved label. Any promotional claims regarding an approved drug must be accurate, not misleading and contain a fair balance of risk and benefit information. The FDA, as well as other government authorities, actively enforces the laws and regulations prohibiting the promotion of inaccurate, misleading or inadequately balanced product claims and the promotion of product for unapproved (i.e., off-label) uses. If we are found to have improperly promoted a prescription drug, we may be subject to significant sanctions. Failure to comply with applicable FDA requirements may subject us to adverse publicity, enforcement action by the FDA, corrective advertising, and the full range of civil and criminal penalties available to the FDA.

The FDA does not regulate the practice of medicine by physicians in their choice of treatment and prescribing decisions.

The marketing of EGRIFTA SV® and Trogarzo® within the United States may also be subject to various federal and state laws pertaining to health care “fraud and abuse,” including but not limited to the federal Anti-kickback Statute, Civil Monetary Penalties Law, and False Claims Act and analogous state laws. The federal Anti-kickback Statute prohibits a person from knowingly and willfully offering, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for or to induce referring or recommending an individual to another person to receive items or services or to purchase, lease, order, or arrange for any good, facility, item or service payable in whole or in part under a Federal health care program. The Civil Monetary Penalties Law prohibits, among other things, a person from offering or transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services. Sanctions under these laws include civil monetary penalties, imposition of a corporate integrity agreement, exclusion from U.S. federal and state healthcare programs (i.e., those programs will not provide reimbursement or payment coverage for EGRIFTA SV® and/or Trogarzo®), and criminal penalties, including imprisonment; further, an alleged violation of the Anti-kickback Statute could be used as a basis for a federal or state false claims law challenge. The federal False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program, knowingly makes, uses or causes to be made or used, a false record or statement material to a false or fraudulent claim, or knowingly makes a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. Generally, claims for drugs prescribed for off-label uses may be considered to be “false claims.” Sanctions under false claims laws include significant civil monetary penalties. In addition, there is ability for private individuals to bring similar actions.

In addition, several states require that companies implement compliance programs or comply with industry ethics codes, adopt marketing spending limits, and report to state governments any gifts, compensation, and other remuneration provided to certain healthcare professionals. Also, the federal Physician Payments Sunshine Act, also known as the Open Payments Act, requires certain manufacturers of drugs, medical devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid or Children’s Health Insurance Program to record and disclose to the federal government certain transfers of value to physicians and teaching hospitals and ownership and investment interests held by physicians and their immediate family members. Any activities relating to the sale and marketing of EGRIFTA SV® and Trogarzo® may be subject to scrutiny under these laws. Failure to make these required reports or comply with these laws can result in civil monetary penalties and/or other sanctions. If the government were to allege or convict us of violating these laws, our business could be harmed. There are a number of states that have similar reporting and disclosure requirements, and failure to comply with these laws could have adverse consequences.

 

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Privacy

In Québec, Canada, privacy is governed by an Act Respecting the Protection of Personal Information in the Private Sector (“Québec Privacy Law”). The Québec Privacy Law was enacted in September 2021 and takes effect over a three (3) year period between 2021 and 2024. The Québec Privacy Law modernized the obligations of Québec-based companies in dealing with the protection of personal information with respect, among other things, to the collection, holding, use and communication of personal information to third parties. The Québec Privacy Law requires Québec-based companies to appoint a privacy officer, the individual responsible to ensure compliance with the Québec Privacy Law, to establish and implement policies on various aspects covered by the Québec Privacy Law and imposes substantial fines and penalties on companies violating the Québec Privacy Law.

In 2023, privacy law continued to evolve in the U.S., mainly at the state level. The California Privacy Rights Act (“CPRA”) amended the California Consumer Privacy Act (“CCPA”) in California, while similar comprehensive consumer privacy laws took effect in four other states—Virginia, Colorado, Connecticut, and Utah. An additional seven states enacted omnibus privacy laws that will take effect at various points over the next few years. Some of these state laws require opt-in consent to process sensitive personal data, including health data. In addition, three states—Washington, Nevada, and Connecticut—passed laws specifically regulating consumer health data, with the intention of regulating data that is not otherwise regulated by the Health Insurance Portability Act of 1996 (“HIPAA”). The Federal Trade Commission also ramped up its enforcement of the Health Breach Notification Rule (“HBNR”), asserting that unauthorized disclosures of personal health information for advertising purposes violate the HBNR.

On the security side, new Security and Exchange Commission (“SEC”) regulations took effect requiring publicly traded companies to report material cybersecurity incidents within 4 days of determining the incident was material, and on annual reports.

Good Manufacturing Practices

Drug products must be manufactured and packaged in accordance, among other things, with GMP and both Bachem and Jubilant, the contract manufacturers of EGRIFTA SV®, as well as WuXi and Samsung, the manufacturer of Trogarzo®, must adhere to GMPs in connection with the manufacture, labeling, packaging, and any other quality-related functions for these products. If a company wants to make certain changes in its manufacturing equipment, location or process, FDA regulatory review and approval may be required. The FDA often conducts audits of manufacturing sites to ensure that manufacturers comply with quality-related requirements and GMPs. If, as a result of these inspections, it is determined that a manufacturer’s equipment, facilities or processes do not comply with the regulations and conditions of product approval, the FDA may issue an FDA-483 list of observations or seek civil, criminal or administrative sanctions and/or remedies against the manufacturer, including seeking corrective action, or requiring suspension of manufacturing operations, which would delay the product and sale of our products.

Good Clinical Practices

The FDA promulgates regulations and standards, commonly referred to as good clinical practices, (“GCPs’), 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. Our research and development activities are subject to GCPs. The FDA enforces GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If study sites fail to comply with applicable GCPs or other applicable requirements, such as informed consent or Institutional Review Board oversight, the clinical data generated in clinical trials may be deemed unreliable and the FDA may require a sponsor to redo its studies or even stop a study. Where patient safety is at risk, the FDA could impose a clinical hold.

FDA Authorization of State Importation Program

FDA authorized its first section 804 importation program, a program allowing Florida to import certain prescription products from Canada. Section 804 (21 U.S.C. § 384) of the FFDCA provides a pathway for states and Indian tribes to allow importation of certain prescription drugs from Canada. Programs under this pathway must significantly reduce the cost of these drugs to the American consumer, without imposing additional risk to public health and safety. As the first program of its kind, we have yet to see how it will be implemented and what specific products will be imported. There is much opposition from industry regarding this program, but if Florida can execute it as planned, it may signal a trend in the US.

 

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Industry is still waiting to understand the practical implications of this program, and what implications this may have on state pharmaceutical industries.

Pharmaceutical Pricing and Reimbursement

In the United States and in other countries, sales of EGRIFTA SV® and Trogarzo® will depend in large part on the availability of reimbursement from third-party payors. These payors include both government (such as Federal Medicare and State Medicaid, AIDS Drug Assistance Programs and special needs plans in the United States) and privately managed care organizations as well as pharmacy benefit managers.

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 products. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of EGRIFTA SV® and Trogarzo®. EGRIFTA SV® and/or Trogarzo® 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, or our commercial partners, to sell EGRIFTA SV® and/or Trogarzo® on a competitive and profitable basis.

United States

The U.S. Congress, state legislatures, and federal and state agencies from time to time propose and adopt initiatives aimed at cost containment, which could impact our ability to sell our drug products profitably. For example, in March 2010, the Patient Protection and Affordable Care Act, and the associated reconciliation bill, which we refer to collectively as the Health Care Reform Law was enacted, and was 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 (inclusive of price increases) 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 all Medicaid drug rebates. On January 21, 2016, the Centers for Medicare and Medicaid Services (“CMS”), finalized a rule detailing reforms to the rebate and reimbursement systems for Medicaid prescription drugs. This final rule was intended to save taxpayers billions and ultimately improve beneficiary access to prescription drugs. The final rule allowed manufacturers to recalculate the baseline “average manufacturer price” and includes U.S. territories in the calculation of “average manufacturer price” and “best price” effective April 1, 2017. Further, the new law imposed a significant annual fee on companies that manufacture or import certain branded prescription drug products and biologic agents. On December 31, 2020, CMS issued a final rule to support state flexibility to enter into value-based purchasing arrangements (“VBPs”), with manufacturers for prescription drugs and to provide manufacturers with regulatory support to enter into VBPs with payers, including Medicaid. This final rule is intended in part to further value-based payment arrangements. Implementation of certain aspects of this final rule were delayed until July 1, 2022. Substantial new provisions affecting compliance also have been enacted, which may require us to modify our business practices with healthcare practitioners, and also may increase our regulatory burdens and operating costs.

The U.S. Medicare program provides payment for many pharmaceuticals under the Medicare Part D program. 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 standalone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. 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.

 

49


Under Part D, 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 Part D applies only to drug benefits for Medicare beneficiaries, state Medicaid programs and private payors may follow Medicare coverage policy limitations in setting their own payment rates. Any reduction in payment that results under Part D may influence decision-making and negotiations for payments from non-governmental payors. Payors are, however, forbidden to negotiate both commercial and Part D agreements together. Negotiations must be kept separate.

The cost of pharmaceuticals continues to generate substantial governmental and third-party private payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, particularly towards specialty pharmacy, the increasing influence of managed care organizations, and additional legislative proposals. For example, CMS issued an interim final rule on November 27, 2020 designed to test whether a Most-Favored-Nation model will help control growth in spending for Medicare Part B drugs without adversely affecting quality of care. This followed an Executive Order issued in September 2020 that directed the Secretary of the U.S. Department of Health and Human Services (“DHHS”) to implement new payment models under the Medicare Part B and Part D programs to curb “unfair” and high drug prices in the United States. Implementation of this interim final rule was blocked by a temporary restraining order and preliminary injunctions through various court actions, and on December 29, 2021, CMS formally rescinded the interim final rule, effective February 28, 2022. Nonetheless, 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.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Health Care Reform Law. The Health Care Reform Law may be modified, amended or repealed at any time and may or may not be replaced with a different law or health care payment system. We are unable to predict the full impact of any such potential modification, amendment or repeal of the Health Care Reform Law.

The passage of the Inflation Reduction Act of 2022 (“IRA”) further affects Medicare reimbursement. The IRA has three key elements reforming Medicare drug pricing policy. However, the implementation of certain elements of the IRA are still forthcoming, as outlined below, so the specific implications for pharmaceutical pricing and reimbursement are yet to be determined. Likewise, we are unable to predict potential modification, amendment, or repeal of the IRA, though some predict that challenges may be made to the IRA as different provisions are enacted.

As the first key element, the IRA created a Medicare drug price negotiation program enabling the Secretary of DHHS to negotiate the prices of certain costly, single-source drugs or biologics within the Medicare program. Certain drugs are excluded from this negotiation process, such as drugs that are less than 9 years, or biologics less than 13 years, from their FDA-approval or licensure date, and drugs with an orphan designation as their only FDA-approved indication. The first set of these negotiated prices will not take effect until 2026.

Second, the IRA requires drug manufacturers to pay rebates to the federal government for price increases above the rate of inflation for single-source drugs or biologics covered under Medicare Part B and most drugs under Medicare Part D, which already occurs under the Medicaid program. This inflation rebate provision for Medicare Part B took effect at the start of 2023, and such provision for Medicare Part D took effect in 2022 as the starting point for measuring drug price increases, with rebate payments required as of the beginning of 2023. DHHS will start to send rebate invoices to drug manufacturers in 2025.

Third, the IRA restructures the Medicare Part D benefit to limit patients’ out-of-pocket costs and rebalance the bearing of risk for Part D plans and manufacturers. As of 2024, Medicare Part D plan buyers will no longer have to pay out-of-pocket costs for covered drugs once they reach the catastrophic coverage level (when the policyholder’s out-of-pocket spending reaches $7,400). Other aspects of this provision will take effect in 2025.

The industry is still waiting to understand the full implications of these changes and the practical impact on pharmaceutical pricing and reimbursement.

 

50


Also, the bipartisan Drug-Price Transparency for Consumers Act was introduced to Senate on April 20, 2023, and the House of Representatives on October 13, 2023 (S.1250 and H.R.5958, respectively) (“Act”). The Act is currently in committee. This Act would require that direct-to-consumer advertisements for drugs and biologicals include a disclosure of pricing information. The Act would apply to drugs and biologicals reimbursable under Medicare or Medicaid and for which direct-to-consumer advertisements are required to include information relating to side effects, contraindications, and effectiveness in accordance with section 202.1(e)(1) of title 21, Code of Federal Regulations. If passed, the Act would amend the Social Security Act to allow the Secretary of DHHS to require such advertisements to disclose the wholesale acquisition cost (“WAC”) cost for a 30-day supply or typical course of treatment and clearly and conspicuously present such price information. If enacted, the Act contemplates that implementing regulations would include the visual and audio components required to communicate the WAC appropriately for the medium of the advertisement, the reasonable amount of time to update the advertisement to reflect any changes to WAC, and the way the manufacturer may include a statement explaining that certain consumers may pay a different amount depending on their insurance coverage.

C.   Organizational Structure

As of November 30, 2023, Theratechnologies had the following five wholly owned subsidiaries with Theratechnologies U.S. Inc. being the only material subsidiary among Theratechnologies’ affiliates:

 

   

Theratechnologies U.S., Inc., a company governed by the DGCL. Theratechnologies U.S., Inc. assists Theratechnologies Inc. with its commercial activities in the United States;

 

   

Theratechnologies Europe Limited, a company governed by the Companies Act 2014 (Ireland). Theratechnologies Europe Limited assists Theratechnologies Inc. with its commercial activities in the United States;

 

   

Theratechnologies Intercontinental Inc., a company governed by the QBCA. Theratechnologies Intercontinental Inc., formerly Theratechnologies ME Inc., used to control the worldwide rights to commercialize EGRIFTA®, except in the United States, Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries, and Canada. Theratechnologies Intercontinental Inc. is no longer an active subsidiary;

 

   

Theratechnologies Europe Inc., a company governed by the QBCA. Theratechnologies Europe Inc., formerly 9176-5057 Québec Inc., used to control the rights to commercialize EGRIFTA® in Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries. Theratechnologies Europe Inc. is no longer an active subsidiary; and

 

   

Pharma-G Inc., a company governed by the QBCA. Pharma-G Inc. is no longer an active subsidiary.

The following chart illustrates our current corporate structure.

 

LOGO

  (1)

These are no longer active subsidiaries.

 

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D.

Property, plants and equipment

Our head office and principal place of business is located at 2015 Peel Street, 11th Floor, Montreal, Québec, Canada H3A 1T8. We lease the entire 10th and 11th floors of the building for a total of 14,992 square feet. We lease additional office and R&D space as set forth in the table below:

 

       
Location    Use of Space    Square Footage    Type of Interest
       

7210 Frederick-Banting Suite 100, St-Laurent, Québec, Canada H4S 2A1

   Occupied for R&D    9,394    Leasehold
       

2101 Jeanne-Mance, Montréal, Québec, Canada H2X 2J6.

   Occupied for R&D    2,461    Leasehold
       

1st Floor, 12 Duke Lane Upper, Royal Hibernian Way, Dublin 2 Ireland D02 DX07.

   Occupied for administration     1,652    Leasehold
       

101 Hudson Street, 21st Floor, Jersey City, New Jersey 07302

   Occupied for administration     119    Leasehold

Item 4A. Unresolved Staff Comments

None

Item 5. Operating and Financial Review and Prospects

The following section is intended to help the reader understand the factors that have affected the Company’s financial condition and results of operations for the historical period covered by the financial statements and management’s assessment of factors and trends which are anticipated to have a material effect on the Company’s financial condition and results in future periods. This section should be read in conjunction with, our audited annual consolidated financial statements and the notes thereto as at November 30, 2023 (“Audited Financial Statements’) and the other financial information contained elsewhere in this document. See “Item 18 – Financial Statements”.

 

A.

Operating results.

Fourth-Quarter and Fiscal 2023 Revenue Highlights

 

(in 000s of US$)

   Three-month
periods ended

November 30,
     % change     Years ended
November 30,
     % change  
       2023        2022                2023        2022           

EGRIFTA SV® net sales

     16,958        14,458        17.3     53,705        50,454        6.4

Trogarzo® net sales

     6,494        6,963        (6.7 %)      28,059        29,603        (5.2 %) 

Revenue

   $ 23,452      $ 21,421        9.5 %    $ 81,764      $ 80,057        2.1

Fiscal Year 2023 Financial Results compared to Fiscal Year 2022 Financial Results

Revenue

Consolidated revenue for the fiscal year ended November 30, 2023 (“Fiscal 2023”) was $81,764,000 compared to $80,057,000 for the same period last year, representing an increase of 2.1%.

For Fiscal 2023, sales of EGRIFTA SV® reached $53,705,000 compared to $50,454,000 for the same period last year representing growth of 6.4%. The increase in net sales of EGRIFTA SV® was mostly the result of a higher number of units sold compared to the previous year, as well as a higher net selling price. Overall growth of EGRIFTA SV® net sales was hampered in 2023 by draw downs in inventory at one of our large specialty pharmacies during the second quarter.

In Fiscal 2023, Trogarzo® net sales were $28,059,000 compared to $29,603,000 in the prior year, a decrease of 5.2%. Net sales of Trogarzo® were negatively affected in the second quarter of 2023 by two factors: (a) drawdowns in inventory at one of our 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 we renegotiated contract terms resulting in a lowering of their 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 our decision to stop commercializing the product in Europe in the fiscal year ending November 30, 2022 (“Fiscal 2022”), resulting in a $975,000 decrease in Fiscal 2023.

 

52


Cost of Sales

For Fiscal 2023, cost of sales was $19,635,000 compared to $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 to $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 write down of F8 Formulation for pre-commercial 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 (See Note 9 of the Audited Financial Statements).

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 $30,370,000 for Fiscal 2023 compared to $36,939,000 for Fiscal 2022, a decrease of 17.8%, mostly due to lower spending on our various programs. R&D expenses in the first and second quarters of Fiscal 2023 were also negatively impacted by expenses of $3,730,000 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 Fiscal 2023 compared to last year, mostly as a result of lower spending on our 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 to $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 our internal field force in the United States as well as severance costs incurred following our 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, we recorded amortization expenses of $2,513,000 for Fiscal 2023, compared to $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 to $17,356,000 for the same period in Fiscal 2022. The decrease in general and administrative expenses is largely due to our 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 to $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 $3,540,000 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.

 

53


Adjusted EBITDA

Adjusted EBITDA was $(2,907,000) for Fiscal 2023 compared to $(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. See “Non-IFRS and Non-US-GAAP Measure” above and see “Reconciliation of Adjusted EBITDA” below for a reconciliation to Net Loss for the relevant periods.

Net Loss

Taking into account the revenue and expense variations described above, we recorded a net loss of $23,957,000, or $0.91 per share, in Fiscal 2023 compared to $47,237,000, or $1.98 per share, in Fiscal 2022.

Fourth-Quarter Fiscal 2023 Financial Results

Revenue

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

For the fourth quarter of Fiscal 2023, sales of EGRIFTA SV® reached $16,958,000 compared to $14,458,000 in the fourth quarter of the prior year, representing an increase of 17.3%. 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 to $6,963,000 for the same quarter of Fiscal 2022, representing a decrease of 6.7%. The decrease was mainly due to lower unit sales in the quarter as compared to 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 November 30, 2023, cost of sales was $5,066,000 compared to $5,909,000 in the comparable period of Fiscal 2022. Lower cost of sales for the fourth quarter of Fiscal 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 write down of F8 Formulation for pre-commercial 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.

R&D Expenses

R&D expenses in the three-month period ended November 30, 2023, amounted to $5,229,000 compared to $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 HFS for the F8 Formulation, as well as the development of the IM method of administration of Trogarzo®. These last 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 November 30, 2023, amounted to $6,748,000 compared to $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 our stated goal of achieving a positive Adjusted EBITDA towards the end of Fiscal 2023. Selling expenses also included $79,000 in severance and other expenses related to the reorganization announced in July 2023.

 

54


General and Administrative Expenses

General and administrative expenses in the fourth quarter of Fiscal 2023 amounted to $3,739,000, compared to $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 November 30, 2023, were $5,352,000 compared to $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 Fiscal 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 Fiscal 2023 versus Fiscal 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 measure, was $4,965,000 for the fourth quarter of Fiscal 2023, compared to $(2,439,000) for the same period of Fiscal 2022. See “Non-IFRS and Non-US-GAAP Measure” above and see “Reconciliation of Adjusted EBITDA” below for a reconciliation to Net Loss for the relevant periods.

Net Loss

Taking into account the revenue and expense variations described above, we recorded a net loss of $2,755,000, or $0.08 per share, in the fourth quarter of Fiscal 2023 compared to a net loss of $7,929,000, or $0.09 per share, in the fourth quarter of Fiscal 2022.

Fiscal Year 2022 Financial Results compared to Fiscal Year 2021 Financial Results

Revenue

Revenue for Fiscal 2022 was $80,057,000 compared to $69,823,000 in Fiscal 2021, representing an increase of 14.7%.

For Fiscal 2022, net sales of EGRIFTA SV® reached $50,454,000 compared to $43,009,000 for Fiscal 2021 representing growth of 17.3%. Strong net sales of EGRIFTA SV® were mostly the result of a higher number of units sold compared to the previous year, as well as higher net selling price. In addition, COVID-19 had a lesser impact on new prescriptions in Fiscal 2022 compared to Fiscal 2021.

In Fiscal 2022, Trogarzo® net sales were $29,603,000 compared to $26,814,000 in Fiscal 2021, an increase of 10.4%. Higher sales were a result of higher unit sales and a higher net selling price in the United States but were offset by slightly lower revenue in Europe. During Fiscal 2021, Trogarzo® net sales in Europe were impacted by a provision taken in the fourth quarter related to greater than anticipated clawbacks on units sold in France prior to finalization of reimbursement terms, pursuant to temporary use authorizations (“ATU” and “AAP”).

Cost of Sales

For Fiscal 2022, cost of sales was $26,279,000 compared to $23,260,000 in Fiscal 2021. Cost of sales included cost of goods sold that amounted to $23,838,000 in Fiscal 2022 compared to $18,378,000 in Fiscal 2021. The increase in cost of goods sold was mainly due to (1) higher product sales, (2), to 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 (3) a provision of $1,477,000 related to the write down of F8 Formulation for pre-commercial material which could expire prior to the launch of the F8 Formulation. Cost of goods sold for Fiscal 2022 also included other write downs totalling $660,000 (See Note 9 of the Audited Financial Statements).

In Fiscal 2021, cost of sales included an amortization charge of $4,882,000 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 lower in Fiscal 2022, in the amount of $2,441,000.

R&D Expenses

R&D expenses were $36,939,000 for Fiscal 2022 compared to $28,274,000 for Fiscal 2021. The increase in R&D expenses was largely due to the development of our oncology platform, including the Phase 1 clinical trial, the IM method of administration clinical trial, spending on the development of the multi-dose pen injector for the F8 Formulation, and spending on the HFS for EGRIFTA SV®. Fiscal 2022 spending also included costs associated to the VAMOS and Promise studies in the United States, as well as increased salaries related to the higher level of activity. These costs were offset by lower spending on the preparation of the NASH clinical trial and a decreased level of activity in Europe.

Selling Expenses

Selling expenses for Fiscal 2022 were $39,391,000 compared to $28,909,000 in Fiscal 2021. The increase is mainly due to the addition of personnel and an increase in promotional activities related to our commercial products in the United States and was offset by lower levels of activity in Europe. The increase is also related to the accelerated amortization of the Trogarzo® commercialization rights for the European territory in the amount of $6,356,000 following our decision to cease commercialization activities in that territory in the second quarter of Fiscal 2022.

 

55


General and Administrative Expenses

General and administrative expenses for Fiscal 2022 were $17,356,000 compared to $14,616,000 in Fiscal 2021. The increase in general and administrative expenses was mainly associated with an overall increase in business activities following the on-boarding of our field force in the United States, as well as higher share-based compensation expense.

Net Finance Costs

Net finance costs for Fiscal 2022 were $6,886,000 compared to $6,426,000 in Fiscal 2021. The increase in net finance costs in Fiscal 2022 versus Fiscal 2021 was mostly due to higher interest expense on the Company’s Loan Facility in the third quarter of Fiscal 2022 and Convertible Notes and were offset by higher interest income and a gain on the repurchase of Convertible Notes in July 2022.

Adjusted EBITDA

Adjusted EBITDA was $(22,088,000) for Fiscal 2022 compared to $(14,586,000) for Fiscal 2021. Adjusted EBITDA in Fiscal 2022 was affected by higher overall spending, as detailed above. The increase in expenses was offset by higher net sales and gross margins. See “Non-IFRS and Non-US-GAAP Measure” above and see “Reconciliation of Adjusted EBITDA” below for a reconciliation to Net Loss for the relevant periods.

Net Loss

Taking into account the revenue and expense variations described above, we recorded a net loss of $47,237,000, or $1.98 per share, in Fiscal 2022 compared to $31,725,000, or $1.37 per share, in Fiscal 2021.

Quarterly Financial Information

The following table is a summary of our unaudited consolidated operating results for the last 8 quarters of Fiscal 2023 and Fiscal 2022.

(in thousands of dollars, except per share amounts)

 

     2023     2022  
     Q4     Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Revenue

     23,452       20,855       17,549       19,908       21,421       20,811       19,268       18,557  

Operating expenses

                

Cost of sales

                

Cost of goods sold

     5,066       4,967       4,909       4,693       5,909       5,292       7,759       4,878  

Amortization of other asset

     -       -       -       -       -       -       1,220       1,221  

R&D

     5,229       5,396       10,389       9,356       9,455       8,425       11,056       8,003  

Selling

     6,748       6,728       6,479       6,814       7,809       8,404       15,371       7,807  

General and administrative

     3,739       3,710       3,716       4,452       3,956       4,209       4,823       4,368  

Total operating expenses

     20,857       20,801       25,493       25,315       27,129       26,330       40,229       26,277  

Net finance costs

     (5,005 )      (674     (1,943     (4,940     (2,078     (1,879     (1,644     (1,285

Income taxes

     (73 )      (126     (126     (96     (143     (151     (122     (27

Net loss

     (2,755 )      (746     (10,013     (10,443     (7,929     (7,549     (22,727     (9,032

Basic and diluted loss per share(1)

     (0.08 )      (0.03     (0.40     (0.44     (0.36     (0.32     (0.96     (0.36

 

  (1)

Amounts from Q1-2022 to Q2-2023 have been restated to reflect the 1 for 4 share consolidation completed on July 31, 2023

Factors Affecting the Variability of Financial Results

There are quarter-over-quarter variations in net sales revenue, principally due to changes in distributor inventory levels with some additional impact from time to time related to average net selling price, which is affected by changes in the mix of private payors versus government drug reimbursement plans.

Higher expenses in Fiscal 2022 were associated with the development of our product pipeline and our decision to stop commercialization activities for Trogarzo® in the European Territory. Lower R&D expenses in the second half of Fiscal 2023 are the result of lower overall activities due to the completion of lifecycle management programs for EGRIFTA SV® and Trogarzo®, and the absence of charges and provisions taken in the first and second quarters of Fiscal 2023 related to production and inventory.

The variability of Net finance costs is mostly due to the costs associated with the amendments to the Loan Facility, the write-off of deferred financing costs, and the change in fair value of the Marathon Warrants, which are reevaluated on a quarterly basis.

Selected Annual Information

(in thousands of dollars, except per share amounts)

 

Years ended November 30      2023        2022        2021  
       

Revenue

       81,764          80,057          69,823  
       

Cost of sales

       19,635          26,279          23,260  
       

Research and development expenses

       30,370          36,939          28,274  
       

Selling expenses

       26,769          39,391          28,909  
       

General and administrative expenses

       15,617          17,356          14,616  
       

Net loss

       (23,957 )         (47,237        (31,725
       

Loss per share: Basic and diluted

       (0.91 )         (1.98        (1.37
       

Cash, bonds and money market funds

       40,387          33,070          40,354  
       

Total assets

       77,769          93,260          119,212  
       

Loan Facility (including current portion)

       57,974          37,894          -  
       

Lease liabilities (including current portion)

       994          1,922          2,518  
       

Convertible unsecured senior notes

       -          26,895          54,227  

 

B.

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 honor its obligations as they fall due during a period of at least, but not limited to, 12 months from November 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.

 

56


For the year ended November 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 November 30, 2023, cash amounted to $34,097,000 and bonds and money market funds amounted to $6,290,000.

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 (refer to Notes 17 of the Audited Financial Statements). 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 September 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 (see note 17 of the Audited Financial Statements).

The amendments to the Marathon Credit Agreement covenants resulted in: (i) revising the minimum liquidity requirements for all times following October 31, 2023 to be between $15,000,000 and $20,000,000, 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 November 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 conditions precedent to drawdown 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 November 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-see Note 16(a) of the Audited Financial Statements) 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 November 30, 2023, cash, bonds and money market funds amounted to $40,387,000 compared to $33,070,000 at November 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 $20,000,000 in cash, bonds and money market funds to respect its minimum liquidity covenant (“Liquidity Covenant”). The Liquidity Covenant can decrease to $17,500,000 and again to $15,000,000 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 to $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 ($1,920,000). 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 $6,910,000. 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 $19,300,000 from the draw-down of the second tranche under the Marathon Credit Agreement. On June 30, 2023, we redeemed the remaining $27,452,000 of Convertible Notes. As at November 30, 2023, no Convertible Notes remained outstanding.

 

57


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 over-allotment option, resulting in the issuance of 160,000 Common Shares.

The Company does not meet the conditions precedent to draw-down the third ($15,000,000) and fourth ($25,000,000) 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 October 31, 2023 to be between $15,000,000 and $20,000,000, 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 November 30, 2023. While the Company’s current cash, bonds and money market funds amounted to $40,387,000, we continue to monitor these balances in order to continuously meet the minimum liquidity requirements as set out in the Marathon Credit Agreement. We currently also meet the Marathon Adjusted EBITDA, and our current operating plan projects that we will continue to meet these targets for the foreseeable future. We plan to ensure continued compliance through close management of expenses and will adapt spending in the event of weakness in our revenues.

Commitments

Off Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Contractual obligations

The following table lists as of November 30, 2023, information with respect to the Company’s contractual obligations.

 

 Contractual Obligations

 

   Total     

Less than

1 Year

    

1 to 3

Years

    

3 to 5

Years

    

More

than 5

years

 

Lease Liabilities

     1,108,000        487,000        516,000        105,000         

Term loan, including interest (1)

     80,141,000        17,416,000        50,348,000        12,377,000     

Purchase Obligations (2)

       15,489,000        10,989,000        2,250,000        2,250,000         

Total

   $ 96,738,000      $  28,892,000      $  53,114,000      $ 14,732,000      $    —  

 

  (1)

Based on SOFR forward rates. The maturities above reflect the fact that the Loan Facility has been amended in the subsequent event period and as such, the contractual maturities are used.

 

 

  (2)

The Corporation has long-term procurement agreements with third party suppliers in connection with the commercialization of EGRIFTA SV® and Trogarzo®. As at November 30, 2023, the Corporation had outstanding purchase orders and minimum payments under these agreements amounting to $14,682,000 for the manufacture of Trogarzo®, EGRIFTA SV® and for various services. The Corporation also had research commitments and outstanding clinical material purchase orders amounting to $807,000 in connection with its oncology platform.

 

License agreement

On February 3, 2020, the Company entered into an amended and restated licence agreement with the Massachusetts General Hospital (“MGH”), as amended on April 15, 2020, in order to benefit from its assistance and knowledge for the development of tesamorelin for the potential treatment of NASH in the general population. Under the terms of the amended agreement, the MGH, through Dr. Steven Grinspoon, will provide services related to the study design, selection of optimal patient population, dosing, study duration and other safety matters and participate, if need be, in regulatory meetings with the FDA or the EMA. In consideration, the Company agreed to make certain milestone payments to the MGH related to the development of tesamorelin and to pay a low single-digit royalty on all sales of EGRIFTA SV® above a certain amount. The payment of the royalty will begin upon approval by the FDA or the EMA (the first to occur) of an expanded label of tesamorelin for the treatment of any fatty liver disease, including Non-Alcoholic Fatty Liver Disease or NASH in the general population.

Financial Risk Management

This section provides disclosures relating to the nature and extent of the Company’s 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

Credit risk refers to the risk of a 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 Company’s exposure to credit risk currently relates to accounts receivable with one major customer (refer to Note 27 to the Audited Financial Statements), other receivable and derivative financial assets which it manages by dealing only with highly rated Canadian financial institutions. Included in the consolidated statements of financial position are trade receivables of $12,798,000 (2022 – $10,659,000), all of which were aged under 60 days or received after year end. There was no amount recorded as bad debt expense for Fiscal 2023 and Fiscal 2022. Financial instruments other than cash and trade and other receivables that potentially subject the Company to significant credit risk consists principally of bonds and money market funds. The Company invests its available cash in highly liquid fixed income instruments from governmental, paragovernmental, municipal and high-grade corporate bodies and money market funds (2023 – $6,290,000; 2022 – $9,214,000). As at November 30, 2023, the Company believes it was not exposed to any significant credit risk. The Company’s maximum credit exposure corresponded to the carrying amount of these financial assets.

 

58


Liquidity Risk

Liquidity risk refers to the risk that the Company will not be able to meet its financial obligations as they become due. As indicated in Note 24 to the Audited Financial Statements, 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 reviews and approves the Company’s 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 designed to ensure that the Company’s liquidity needs are met. The instruments are selected with regards to the expected timing of expenditures and prevailing interest rates.

Pursuant to the Marathon Credit Agreement, the Company is required to maintain cash, cash equivalents and eligible short-term investments overtime between $15,000,000 to $20,000,000 based on the last twelve months adjusted EBITDA-based targets, which restricts the management of the Company’s liquidity. Refer to notes 1 and 17 of the Audited Financial Statements.

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 Company’s business transactions denominated in currencies other than US$, primarily cash, sale of goods and expenses incurred in CA$ and euros.

Exchange rate fluctuations for foreign currency transactions can cause cash flows, as well as amounts recorded in the consolidated statements of net loss, 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 US$ 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 statements of net loss.

The following table presents the significant items in the original currencies exposed to currency risk as at November 30, 2023 and 2022.

(in thousands)

 

         
             2023            2022  
         
     CA$     EURO     CA$     EURO  

Cash

     358       123       1,547       236  

Bonds and money market funds

         8,543       -           12,387       -  

Trade and other receivables

     296       2       733          2,141  

Tax credits and grants receivable

     497       145       66       239  

Accounts payables and accrued liabilities

     (5,395     (224     (10,784     (5,849

Lease liabilities

     (925     (288     (1,362     (873

Provisions

     (326        (3,192     -       (3,486

Total exposure

     3,048       (3,434     2,587       (7,592

The following exchange rates are those applicable as at November 30, 2023 and 2022.

 

            2023          2022
     

Average

rate

   Reporting
date rate
   Average
rate
   Reporting
date rate

CA$ – US$

       0,7404        0,7363        0,7722        0,7439

Euro – US$

   1,0792    1,0903    1,0600    1,0406

Based on the Company’s foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5% strengthening of the CA$ or the euro would have an impact on net earnings for CA$ and in the accumulated other comprehensive loss for euro as follows, assuming that all other variables remained constant.

(in thousands)

 

              2023              2022  
      CA$      Euro      CA$      Euro  

Positive (negative) impact

         152             (172)            129            (380)  

An assumed 5% weakening of the CA$ or of the euro would have had an equal but opposite effect on the above currencies in the amounts shown above, assuming that all other variables remained constant.

 

59


Interest Rate Risk

Interest rate risk refers to 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 fair value through OCI, are generally held until close to maturity. The unrealized gains or losses on bonds are recorded in accumulated other comprehensive income (loss).

Based on the value of the Company’s short- and long-term bonds as at November 30, 2023, an assumed 0.5% decrease in market interest rates would have increased the fair value of these bonds and the accumulated other comprehensive income (loss) by approximately $42,000 (2022 – $79,000); an assumed increase in market interest rates of 0.5% would have an equal but opposite effect, assuming that all other variables remained constant.

Cash and money market funds bear interest at variable rates. Trade and other receivables, accounts payable and accrued liabilities and provisions bear no interest.

Based on the average value of variable interest-bearing cash and money market funds during the year ended November 30, 2023 of $20,231,000 (2022 – $23,505,000), an assumed 0.5% increase in interest rates during such year would have increased future cash flows and net profit by approximately $101,000 (2022 – $118,000); an assumed decrease of 0.5% would have had an equal but opposite effect.

Based on the value of the Company’s long-term loan as at November 30, 2023, an assumed 0.5% increase in SOFR rate during such year would have decreased future cash flows and net profit by approximately $300,000 and an assumed increase of 0.5% would have had an equal but opposite effect.