40-F
 
 
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
(Check One)
þ   Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934
or
o   Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended                     
Commission file number:                     
THERATECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
             
Québec, Canada
    2834     Not applicable
(Province or other jurisdiction
  (Primary   (I.R.S. Employer
of incorporation or
  Industrial   Identification Number)
organization)
  Industrial    
 
  Classification    
 
  Code Number    
 
  (if applicable)    
2310 Alfred-Nobel Boulevard
Montreal, Québec, Canada H4S 2B4
(514) 336-7800

(Address and Telephone Number of Registrant’s Principal Executive Offices)
CT Corporation System
111-8
th Avenue, New York, New York 10011
(212) 894-8940

(Name, Address (Including Zip Code) and Telephone Number (Including Area Code) of Agent For Service in the United States)
Copies to:
     
Jocelyn Lafond
  Lawrence S. Wittenberg
Theratechnologies Inc.
  Martin C. Glass
2310 Alfred-Nobel Blvd.
  Goodwin Procter LLP
Montreal, Québec, H4S 2B4
  Exchange Place
CANADA
  Boston, Massachusetts 02109
(514) 336-4804
  (617) 570-1000
Securities registered or to be registered pursuant to Section 12(b) of the Act.
     
Title Of Each Class
  Name Of Exchange On Which Registered
Common Shares
  The NASDAQ Stock Market LLC
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark the information filed with this Form:
     
o Annual Information Form
  o Audited Annual Financial Statements
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: Not applicable
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 o No þ
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes o No o
 
 

 


 

FORWARD-LOOKING STATEMENTS
This registration statement and the exhibits attached hereto 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 in this registration statement include, but are not limited to, statements about:
    our ability, and the ability of our commercial partners, to commercialize EGRIFTA® in the United States and other territories;
 
    whether we will receive regulatory approvals for tesamorelin from regulatory agencies in territories other than the United States in which we wish to expand the commercialization of tesamorelin, and the timing and costs of obtaining such regulatory approvals;
 
    our recognition of milestones, royalties and other revenues from our commercial partners related to future sales of EGRIFTA®;
 
    our plans to conduct a new clinical program for tesamorelin in muscle wasting in chronic obstructive pulmonary disease, or COPD, including the timing and results of these clinical programs;
 
    the continuation of our collaborations and other significant agreements with our existing commercial partners and our ability to establish and maintain additional development collaborations;
 
    our estimates of the size of the potential markets for EGRIFTA®, tesamorelin and our other product candidates;
 
    the rate and degree of market acceptance of EGRIFTA® and our other product candidates;
 
    our success in obtaining, and the timing and amount of, reimbursement for EGRIFTA® and our other product candidates;
 
    the benefits of tesamorelin and our other product candidates as compared to others’;
 
    the success and pricing of other competing drugs or therapies that are or may become available;
 
    our ability to maintain and establish intellectual property rights in tesamorelin and our other product candidates;
 
    the manufacturing capacity of third-party manufacturers, including the manufacturer of tesamorelin in commercial quantities;
 
    our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity, capital expenditures and income taxes; and
 
    our need for additional financing and our estimates regarding our capital requirements and future revenues and profitability.

2


 

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:
    tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy will receive approval in territories other than the United States covered in our commercialization agreements;
 
    no additional clinical studies will be required to obtain said regulatory approval of tesamorelin;
 
    EGRIFTA® will be accepted by the marketplace in the United States and will be on the list of reimbursed drugs by third-party payors;
 
    our relations with third-party suppliers of EGRIFTA® will be conflict-free and that such third-party suppliers will have the capacity to manufacture and supply EGRIFTA® to meet market demand and on a timely basis;
 
    we will obtain positive results from our clinical program for the development of tesamorelin for muscle wasting in COPD patients; and
 
    our business plan will not be substantially modified.
Forward-looking statements reflect our views as of the date of the statements with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these risks and uncertainties, the forward-looking events and circumstances discussed in this registration statement may not occur, and you should not place undue reliance on these forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” in our Annual Information Form for the fiscal year ended November 30, 2010, which is filed as exhibit 99.1 to this Registration Statement, as well as in the other documents attached as exhibits to this Registration Statement. Also, these forward-looking statements represent our estimates and assumptions only as of the date of the statements. 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 registration statement, and particularly our forward-looking statements, with these cautionary statements.
DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES
The Corporation’s financial statements, including those in the exhibits attached to this Registration Statement, are prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). IFRS differ in some significant respects from U.S. GAAP, and thus the Corporation’s financial statements may not be comparable to the financial statements of United States companies. These differences between IFRS and U.S. GAAP might be material to the financial information presented in this registration statement. In addition, differences may arise in subsequent periods related to changes in IFRS or U.S. GAAP or due to new transactions we enter into. We are not required to prepare a reconciliation of our consolidated financial statements and related footnote disclosures between IFRS and U.S. GAAP and have not quantified such differences.

3


 

NASDAQ QUORUM REQUIREMENT
Nasdaq Marketplace Rule 5615(a)(3) permits a foreign private issuer to follow its home country practice in lieu of certain of the requirements of the Rule 5600 Series. A foreign private issuer that follows a home country practice in lieu of one or more provisions of the Rule 5600 Series shall disclose in its registration statement related to its initial public offering or first U.S. listing on Nasdaq, or on its website, each requirement of the Rule 5600 Series that it does not follow and describe the home country practice followed by the issuer in lieu of those requirements.
The Corporation does not follow Rule 5620(c), but instead follows its home country practice. The Nasdaq minimum quorum requirement under Rule 5620(c) for a meeting of shareholders is 33.33% of the outstanding common shares. In addition, Rule 5620(c) requires that an issuer listed on Nasdaq state its quorum requirement in its bylaws. On February 8, 2006, as permitted by Part IA of the Companies Act (Québec), the Corporation’s directors approved a by-law amendment, which amendment was ratified by the Corporation’s shareholders on March 30, 2006, providing that one or more persons present in person or duly represented and holding not less than 10% of our common shares shall constitute a quorum at a meeting of our shareholders. The foregoing is consistent with the laws, customs, and practices in Canada.
DOCUMENTS FILED PURSUANT TO GENERAL INSTRUCTIONS
In accordance with General Instruction B.(1) of Form 40-F, the Corporation hereby incorporates by reference Exhibit 99.1 through 99.91 as set forth in the Exhibit Index attached hereto. In accordance with General Instruction D.(9) of Form 40-F, the Corporation has filed a written consent of an expert named in the foregoing Exhibit 99.92, as set forth in the Exhibit Index attached hereto.
OFF-BALANCE SHEET ARRANGEMENTS
The Corporation does not have any off-balance sheet arrangements.
DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table lists as of November 30, 2010 information with respect to the Corporation’s known contractual obligations (stated in Canadian dollars).
                                         
            Less than 1                     More than  
Contractual Obligations   Total     Year     1 to 3 Years     3 to 5 Years     5 years  
Long Term Debt Obligations
                             
Capital Lease Obligations
                             
Operating Lease Obligations
  $ 6,237,000     $ 55,000     $ 1,311,000     $ 928,000     $ 3,943,000  
Purchase Obligations
                             
Other Long-Term Liabilities
                             
 
                             
Total
  $ 6,237,000     $ 55,000     $ 1,311,000     $ 928,000     $ 3,943,000  
 
                             
Long-term procurement agreements:
    During and after the years ended November 30, 2010 and 2009, the Corporation entered into long-term procurement agreements with third-party suppliers in anticipation of the commercialization of EGRIFTA®.
Credit facility:
    The Corporation has a $1,800,000 revolving credit facility, bearing interest at prime plus 0.5%. Under the terms of the credit facility, the market value of investments held must always be equivalent to 150% of amounts drawn under the facility. If the market value falls below $7,000,000, the Corporation will provide the bank with a first rank movable hypothec (security interest) of $1,850,000 on securities judged satisfactory by the bank.
    As at November 30, 2010 and 2009, the Corporation did not have any borrowings outstanding under this credit facility.
UNDERTAKINGS
The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the staff of the SEC, and to furnish promptly, when requested to do so by the staff of the SEC, information relating to the securities registered pursuant to this Registration Statement or transactions in said securities.
CONSENT TO SERVICE OF PROCESS
Concurrently with the filing of this Registration Statement, the Registrant will file with the SEC an Appointment of Agent for Service of Process and Undertaking on Form F-X.
Any change to the name or address of the agent for service of the Registrant shall be communicated promptly to the SEC by amendment to Form F-X referencing the file number of the Registrant.

4


 

SIGNATURES
Pursuant to the requirements of the United States Securities Exchange Act of 1934, as amended, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized.
         
  THERATECHNOLOGIES INC.
 
 
  By:  /s/ Luc Tanguay  
    Name:  Luc Tanguay  
    Title:   Senior Executive Vice President and
Chief Financial Officer
 
       
    Date:   June 13, 2011  

5


 

         
EXHIBIT INDEX
     
Exhibit   Description
 
   
 
  Annual Information
 
   
99.1
  Annual information form, for the year ended November 30, 2010
 
   
99.2
  Management’s Discussion and Analysis, for the twelve months ended November 30, 2010 and 2009
 
   
99.3
  Audited annual financial statements, for the years ended November 30, 2010 and 2009, and as of December 1, 2008
 
   
99.4
  Annual information form, for the year ended November 30, 2009
 
   
99.5
  Annual report, for the year ended November 30, 2009
 
   
99.6
  Management’s Discussion and Analysis (amended), for the twelve months ended November 30, 2009 and 2008
 
   
99.7
  Management’s Discussion and Analysis, for the twelve months ended November 30, 2009 and 2008
 
   
99.8
  Audited annual financial statements, for the years ended November 30, 2009 and 2008
 
   
 
  Quarterly Information
 
   
99.9
  Management’s Discussion and Analysis, for the three months ended February 28, 2011 and 2010
 
   
99.10
  Interim financial statements/report, for the three months ended February 28, 2011 and 2010
 
   
99.11
  Management’s Discussion and Analysis, for the three and nine months ended August 31, 2010 and 2009
 
   
99.12
  Interim financial statements (amended), for the nine months ended August 31, 2010 and 2009
 
   
99.13
  Management’s Discussion and Analysis (amended), for the three and nine months ended August 30, 2010 and 2009
 
   
99.14
  Interim financial statements, for the nine months ended August 30, 2010 and 2009
 
   
99.15
  Management’s Discussion and Analysis (amended), for the three and six months ended May 31, 2010 and 2009
 
   
99.16
  Interim financial statements (amended), for the six months ended May 31, 2010 and 2009
 
   
99.17
  Management’s Discussion and Analysis, for the three and six months ended May 31, 2010 and 2009
 
   
99.18
  Interim financial statements, for the six months ended May 31, 2010 and 2009
 
   
99.19
  Management’s Discussion and Analysis (amended), for the three months ended February 28, 2010 and 2009
 
   
99.20
  Interim financial statements (amended), for the three months ended February 28, 2010 and 2009 (as of February 9, 2011)

i


 

     
Exhibit   Description
 
   
99.21
  Interim financial statements (amended), for the three months ended February 28, 2010 and 2009 (as of July 27, 2010)
 
   
99.22
  Management’s Discussion and Analysis, for the 3 months ended February 28, 2010 and 2009
 
   
99.23
  Interim financial statements, for the three months ended February 28, 2010 and 2009
 
   
99.24
  Management’s Discussion and Analysis, for the three months ended November 30, 2009 and 2008
 
   
99.25
  Interim financial statements, for the periods ended November 30, 2009 and 2008
 
   
 
  Shareholder Meeting Materials
 
   
99.26
  Notice of annual and special meeting of shareholders, dated April 14, 2011, for the Annual and Special Meeting of Shareholders on May 18, 2011
 
   
99.27
  Form of proxy for the Annual and Special Meeting of Shareholders on May 18, 2011
 
   
99.28
  Management information circular, dated April 14, 2011
 
   
99.29
  Notice of annual and special meeting of shareholders, dated February 23, 2010, for the Annual and Special Meeting of Shareholders on March 25, 2010
 
   
99.30
  Form of proxy for the Annual and Special Meeting of Shareholders on March 25, 2010
 
   
99.31
  Management information circular, dated February 23, 2010
 
   
 
  Material Change Reports
 
   
99.32
  Material change report, dated June 3, 2011
 
   
99.33
  Material change report, dated May 27, 2011
 
   
99.34
  Material change report, dated February 22, 2011
 
   
99.35
  Material change report, dated February 10, 2011
 
   
99.36
  Material change report, dated December 16, 2010
 
   
99.37
  Material change report, dated November 19, 2010
 
   
99.38
  Material change report, dated September 1, 2010
 
   
99.39
  Material change report, dated June 8, 2010
 
   
99.40
  Material change report, dated February 11, 2010
 
   
 
  Press Releases
 
   
99.41
  Press release, dated June 6, 2011, announcing filing of european marketing authorization application of tesamorelin
 
   
99.42
  Press release, dated June 2, 2011 adopting new R&D Business Model
 
   
99.43
  Press release, dated May 18, 2011, regarding annual and special meeting of the shareholders
 
   
99.44
  Press release, dated May 16, 2011, announcing annual and special meeting of the shareholders
 
   
99.45
  Press release, dated April 12, 2011, announcing results for the first quarter 2011
 
   
99.46
  Press release, dated March 8, 2011, announcing decision to withdraw the cross-border offering
 
   
99.47
  Press release, dated February 22, 2011, announcing filing of preliminary prospectus for cross-border offering

ii


 

     
Exhibit   Description
 
   
99.48
  Press release, dated February 22, 2011, announcing new clinical program in muscle wasting in Chronic Obstructive Pulmonary Disease (COPD)
 
   
99.49
  Press release, dated February 9, 2011, announcing results for the 2010 fiscal year
 
   
99.50
  Press release, dated February 3, 2011, announcing a distribution and licensing agreement for tesamorelin in Europe
 
   
99.51
  Press release, dated February 2, 2011, concerning a conference call to announce a partnership agreement
 
   
99.52
  Press release, dated December 6, 2010, announcing a distribution and licensing agreement for EGRIFTA in Latin America, Africa and the Middle East with sanofi-aventis
 
   
99.53
  Press release, dated December 5, 2010, concerning a conference call to announce a partnership agreement
 
   
99.54
  Press release, dated December 2, 2010, announcing plans of early adoption of International Financial Reporting Standards
 
   
99.55
  Press release, dated December 1, 2010, welcoming the arrival of its new President and CEO
 
   
99.56
  Press release, dated November 11, 2010, announcing FDA approval of EGRIFTA
 
   
99.57
  Press release, dated November 10, 2010, concerning a conference call to announce FDA’s final decision on its new drug application for tesamorelin
 
   
99.58
  Press release, dated October 14, 2010, announcing the retirement date for the President and CEO: Mr. Yves Rosconi
 
   
99.59
  Press release, dated October 12, 2010, announcing results for the third quarter 2010
 
   
99.60
  Press release, dated October 5, 2010, announcing presentation at BioContact Quebec
 
   
99.61
  Press release, dated September 20, 2010, announcing presentation at UBS Global Life Sciences Conference
 
   
99.62
  Press release, dated September 13, 2010, announcing presentation at the Interscience Conference on Antimicrobial Agents and Chemotherapy 50th annual meeting
 
   
99.63
  Press release, dated September 1, 2010, announcing the appointment of a new President and CEO
 
   
99.64
  Press release, dated August 2, 2010, announcing presentations at both BMO and Canaccord Genuity conferences
 
   
99.65
  Press release, dated July 26, 2010, announces receipt of a motion of authorization to institute a class action
 
   
99.66
  Press release, dated July 20, 2010, updates timeline for FDA action date for tesamorelin’s New Drug Application
 
   
99.67
  Press release, dated July 7, 2010, announcing results for second quarter 2010
 
   
99.68
  Press release, dated June 29, 2010, announcing addition to the Russell Global Index
 
   
99.69
  Press release, dated June 24, 2010, announcing publication of combined tesamorelin Phase 3 results in JCEM

iii


 

     
Exhibit   Description
 
   
99.70
  Press release, dated June 8, 2010, announcing presentation at both Jefferies and Needham conferences
 
   
99.71
  Press release, dated June 2, 2010, announcing that Yves Rosconi, President & CEO of Theratechnologies, will retire on December 31, 2010
 
   
99.72
  Press release, dated May 27, 2010, announcing positive vote by FDA Advisory Committee for tesamorelin
 
   
99.73
  Press release, dated April 5, 2010, announcing presentation at BioFinance 2010 conference
 
   
99.74
  Press release, dated March 25, 2010, reporting positive outcome at its annual and special meeting of shareholders
 
   
99.75
  Press release, dated March 23, 2010, announcing financial results for the first quarter 2010
 
   
99.76
  Press release, dated March 22, 2010, announcing Annual and Special Meeting of Shareholders
 
   
99.77
  Press release, dated March 22, 2010, announcing that FDA confirmed date for Advisory Committee review of tesamorelin’s New Drug Application
 
   
99.78
  Press release, dated March 1, 2010, announcing publication of second Phase 3 results in JAIDS
 
   
99.79
  Press release, dated February 25, 2010, announcing a tentative new date for the FDA Advisory Committee review of the tesamorelin New Drug Application
 
   
99.80
  Press release, dated February 10, 2010, announcing that milestones met in 2009 lead to optimistic outlook
 
   
99.81
  Press release, dated February 10, 2010, announcing adoption of shareholder rights plan
 
   
99.82
  Press release, dated January 25, 2010, reporting that the FDA will reschedule for administrative reasons the Advisory Committee meeting to review tesamorelin’s NDA
 
   
99.83
  Press release, dated January 18, 2010, reporting the date for FDA Advisory Committee Review of the Tesamorelin New Drug Application
 
   
99.84
  Press release, dated January 11, 2010, announcing presentation at Biotech Showcase 2010
 
   
99.85
  Press release, dated December 29, 2009, announcing patent protection in Brazil for tesamorelin
 
   
 
  Other Material Documents Filed with Canadian Securities Regulators
 
   
99.86
  Shareholder Rights Plan Agreement, dated as of February 10, 2010
 
   
99.87
  Supply Agreement, by and between Theratechnologies Inc. and Gruppo Cartotecnico abar litofarma SRL, dated January 5, 2010
 
   
99.88
  OEM Agreement, by and between Theratechnologies Inc. and Becton Dickinson Canada Inc., dated November 6, 2009
 
   
99.89
  Development and Supply Agreement, by and between Theratechnologies Inc. and Hospira Worldwide, Inc., dated as of
March 26, 2009
 
   
99.90
  Manufacturing and Supply Agreement, by and among Theratechnologies Inc., Bachem Americas Inc., and Bachem, Inc., dated March 11, 2009

iv


 

     
Exhibit   Description
 
   
99.91
  Manufacture and Supply Agreement, by and between Draxis Pharma General Partnership and Theratechnologies Inc., dated as of December 23, 2009
 
   
 
  Consent
 
   
99.92
  Consent of KPMG LLP

v

ex-99.1
Exhibit 99.1
ANNUAL INFORMATION FORM
Financial Year Ended November 30, 2010
(THERA TECHNOLOGIES LOGO)
February 22, 2011

 


 

FORWARD-LOOKING STATEMENTS
This Annual Information Form, or AIF, contains 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 ability, and the ability of our commercial partners, to commercialize EGRIFTA® in the United States and other territories;
 
    whether we will receive regulatory approvals for tesamorelin from regulatory agencies in territories other than the United States in which we wish to expand the commercialization of tesamorelin, and the timing and costs of obtaining such regulatory approvals;
 
    our recognition of milestones, royalties and other revenues from our commercial partners related to future sales of EGRIFTA®;
 
    our plans to conduct a new clinical program for tesamorelin in muscle wasting in chronic obstructive pulmonary disease, or COPD, including the timing and results of these clinical programs;
 
    the continuation of our collaborations and other significant agreements with our existing commercial partners and our ability to establish and maintain additional development collaborations;
 
    our estimates of the size of the potential markets for EGRIFTA®, tesamorelin and our other product candidates;
 
    the rate and degree of market acceptance of EGRIFTA® and our other product candidates;
 
    our success in obtaining, and the timing and amount of, reimbursement for EGRIFTA® and our other product candidates;
 
    the benefits of tesamorelin and our other product candidates as compared to others;
 
    the success and pricing of other competing drugs or therapies that are or may become available;
 
    our ability to maintain and establish intellectual property rights in tesamorelin and our other product candidates;
 
    the manufacturing capacity of third-party manufacturers, including the manufacturer of tesamorelin in commercial quantities;
 
    our expectations regarding our financial performance, including revenues, expenses, gross margins, liquidity, capital expenditures and income taxes; and
 
    our need for additional financing and our estimates regarding our capital requirements and future revenues and profitability.

 


 

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:
    tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy will receive approval in territories other than the United States covered in our commercialization agreements;
 
    no additional clinical studies will be required to obtain said regulatory approval of tesamorelin;
 
    EGRIFTA® will be accepted by the marketplace in the United States and will be on the list of reimbursed drugs by third-party payors;
 
    our relations with third-party suppliers of EGRIFTA® will be conflict-free and that such third-party suppliers will have the capacity to manufacture and supply EGRIFTA® to meet market demand and on a timely-basis;
 
    we will obtain positive results from our clinical program for the development of tesamorelin for muscle wasting in COPD patients; and
 
    our business plan will not be substantially modified.
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 events and circumstances discussed in this AIF may not occur, and you should not place undue reliance on these forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors”. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this AIF. 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 AIF, and particularly our forward-looking statements, with these cautionary statements.
This AIF also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry and target indications. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.
BASIS OF PRESENTATION
We obtained the industry, market and competitive position data in this AIF from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. Certain statistical data and other information regarding the size of our potential markets are based on industry publications and/or derived from our own internal analysis of such industry publications. While we believe our internal company research is reliable and the market definitions, methodology and hypotheses we use are appropriate, such research, analysis, methodology or definitions have been verified by an independent source. We cannot and do not provide any assurance as to the accuracy or completeness of such information. Market forecasts, in particular, are likely to be inaccurate, especially over long periods of time.
In this AIF, the use of EGRIFTA® refers to tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy regardless of the trade name used for such product in any particular territory. EGRIFTA® is the trade name used in the United States for tesamorelin for the

 


 

reduction of excess abdominal fat in HIV-infected patients with lipodystrophy. EGRIFTA® is our trademark. Other trademarks and service marks appearing in this AIF are the property of their respective holders.
All monetary amounts set forth in this AIF are expressed in Canadian dollars, except where otherwise indicated. References to “$” and “C$” are to Canadian dollars and references to “US$” are to U.S. dollars.
In this AIF, references to “Theratechnologies”, “we”, “our” and “us” refer to Theratechnologies Inc. and its subsidiaries, unless the context otherwise states.
All information provided in this AIF is provided as of February 21, 2011, except where otherwise stated.

 


 

TABLE OF CONTENTS
         
ITEM 1 CORPORATE STRUCTURE
    6  
 
       
1.1 NAME, ADDRESS AND INCORPORATION
    6  
1.2 SUBSIDIARIES
    6  
 
       
ITEM 2 OUR BUSINESS
    7  
 
       
2.1 OVERVIEW
    7  
2.2 RECENT DEVELOPMENTS
    8  
2.3 THREE YEAR HISTORY
    9  
2.4 OUR STRATEGY
    11  
2.5 OUR PRODUCT AND PRODUCT CANDIDATES
    12  
2.6 INTELLECTUAL PROPERTY
    19  
2.7 MANUFACTURING
    22  
2.8 COMPETITION
    23  
2.9 GOVERNMENT REGULATION
    23  
2.10 PHARMACEUTICAL PRICING AND REIMBURSEMENT
    31  
2.11 EMPLOYEES
    33  
2.12 FACILITIES
    33  
2.13 ENVIRONMENT
    34  
 
       
ITEM 3 RISK FACTORS
    35  
 
       
3.1 RISKS RELATED TO THE COMMERCIALIZATION OF OUR PRODUCT AND PRODUCT CANDIDATES
    35  
3.2 RISKS RELATED TO THE REGULATORY REVIEW PROCESS
    41  
3.3 RISKS RELATED TO OUR INTELLECTUAL PROPERTY
    44  
3.4 OTHER RISKS RELATED TO OUR BUSINESS
    46  
3.5 RISKS RELATED TO OUR COMMON SHARES
    50  
 
       
ITEM 4 DIRECTORS AND EXECUTIVE OFFICERS
    53  
 
       
4.1 DIRECTORS
    53  
4.2 AUDIT COMMITTEE
    56  
4.3 EXECUTIVE OFFICERS
    57  
4.4 DECLARATION OF THE DIRECTORS’ AND OFFICERS’ ANTECEDENTS
    60  
4.5 SECURITIES HELD BY THE DIRECTORS AND EXECUTIVE OFFICERS
    60  
 
       
ITEM 5 INTERESTS OF EXPERTS
    61  
 
       
ITEM 6 SECURITIES OF THE COMPANY
    62  
 
       
6.1 AUTHORIZED SHARE CAPITAL
    62  
6.2 DIVIDEND POLICY
    62  
6.3 TRANSFER AGENT AND REGISTRAR
    62  
 
       
ITEM 7 MARKET FOR SECURITIES
    63  
 
       
7.1 TRADING PRICE AND VOLUME
    63  
7.2 PRIOR SALES
    63  
 
       
ITEM 8 LEGAL PROCEEDINGS
    64  
 
       
ITEM 9 MATERIAL CONTRACTS
    65  
 
       
ITEM 10 ADDITIONAL INFORMATION
    67  
 
       
APPENDIX A — AUDIT COMMITTEE CHARTER
    68  

 


 

ITEM 1 CORPORATE STRUCTURE
1.1 NAME, ADDRESS AND INCORPORATION
We were incorporated under the name Theratechnologies Inc. on October 19, 1993 under Part IA of the Companies Act (Québec) (now the Business Corporations Act (Québec)) by Certificate of Incorporation. 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. Finally, 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. Our common shares are listed on the Toronto Stock Exchange, or TSX, under the symbol “TH”. See Item 6.1 for a complete description of our authorized share capital.
Our head office is located at 2310 Alfred-Nobel Boulevard, Montréal, Québec, Canada H4S 2B4. Our phone number is (514) 336-7800. Our website is www.theratech.com. The information contained on our website is not part of this AIF.
1.2 SUBSIDIARIES
As of February 21, 2011, Theratechnologies had the following three wholly-owned subsidiaries:
    Theratechnologies Intercontinental Inc., a company incorporated under Part 1A of the Companies Act (Québec) and governed by the Business Corporations Act (Québec). Theratechnologies Intercontinental Inc., formerly Theratechnologies ME Inc., controls 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 Europe Inc., a company incorporated under Part 1A of the Companies Act (Québec) and governed by the Business Corporations Act (Québec). Theratechnologies Europe Inc., formerly 9176-5057 Québec Inc., controls the rights to commercialize EGRIFTA® in Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries; and
 
    Pharma-G Inc., a company incorporated under Part 1A of the Companies Act (Québec) and governed by the Business Corporations Act (Québec). Pharma-G Inc. is no longer an active subsidiary.
Theratechnologies has retained the rights to commercialize EGRIFTA® in the United States and in Canada.

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ITEM 2 OUR BUSINESS
2.1 OVERVIEW
We are a specialty pharmaceutical company that discovers and develops innovative therapeutic peptide products with an emphasis on growth-hormone releasing factor, or GRF, peptides. Our strategy is to leverage our expertise in the field of metabolism and GRF peptides to address serious health disorders while remaining actively involved in the commercialization of our future products. Our first product, EGRIFTA® (tesamorelin for injection), was approved by the United States Food and Drug Administration, or FDA, in November 2010. EGRIFTA® is currently the only approved therapy for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
We estimate that excess abdominal fat in HIV-infected patients affects approximately 29% of HIV-infected patients treated with antiretroviral therapies and approximately 12% of untreated patients. In HIV-infected patients, lipodystrophy may be caused by the viral infection itself, the use of antiretroviral therapy, or both. Lipodystrophy is characterized by abnormalities in the production and storage of fat, which lead to excess abdominal fat, or lipohypertrophy, and the loss of fat tissue, or lipoatrophy, generally occurring in the limbs and facial area.
Excess abdominal fat in HIV-infected patients is associated with significant health risks beyond the mortality risk of the HIV infection itself. These health risks include metabolic disturbances such as hyperlipidemia, an increase in the amount of fat in the blood (such as triglycerides and cholesterol), and hyperglycemia, an increase in the amount of sugar in the blood, characterized by insulin resistance, both of which lead to increased risks of cardiovascular disease and diabetes. While there is evidence that suggests that lipoatrophy may be reduced with certain newer HIV therapies, we are not aware of any evidence showing that any currently-marketed HIV therapy reduces lipohypertrophy or the incidence of lipohypertrophy.
EGRIFTA® is currently marketed exclusively in the United States by EMD Serono Inc., or EMD Serono, an affiliate of Merck KGaA, Darmstadt, Germany, pursuant to a collaboration and licensing agreement. We have also recently entered into distribution and licensing agreements for EGRIFTA® with Sanofi Winthrop Industries S.A., or Sanofi, granting Sanofi the exclusive commercialization rights in Latin America, Africa and the Middle East and with Ferrer Internacional S.A., or Ferrer, granting Ferrer the exclusive commercialization rights in Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries. For a description of these agreements, see Item 2.5. Using data compiled by the United States Center for Disease Control, or CDC, and the World Health Organization and UNAIDS, or WHO/UNAIDS, we estimate that in 2012 there will be approximately 190,000 HIV-infected patients treated with antiretroviral therapies with lipohypertrophy in the United States, 170,000 in Europe, and 180,000 in Latin America, or 540,000 patients in total. We also estimate that in 2012, there will be an additional 47,000 HIV-infected untreated patients with lipohypertrophy in the United States, 42,000 in Europe, and 28,000 in Latin America, or an additional 117,000 patients in total.
In January 2011, EMD Serono launched EGRIFTA® in the United States. EMD Serono is executing a launch program that consists of medical education, advertising, marketing and promotion through their experienced sales force, and supporting market access through co-pay programs, reimbursement education and support for payors. We believe EGRIFTA® will achieve a high degree of physician and payor acceptance, driven by our product’s safety and efficacy, the lack of approved alternative therapies for these patients and the prominent medical and social need to treat HIV/AIDS patients.

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EGRIFTA® is the trade name used for our first marketed product using our most advanced compound, tesamorelin. Tesamorelin is a GRF analogue that stimulates the synthesis and pulsatile release of endogenous growth hormone. Tesamorelin was synthesized using our internally-developed peptide stabilization method. This method increases a protein’s resistance to enzymatic degradation, which prolongs its duration of action and enhances its effectiveness in clinical use. We believe this compound and future GRF analogues that we are developing can be used in a number of additional high-value indications. Clinical data have shown tesamorelin to have both lipolytic (fat-burning) and anabolic (muscle-building) properties. Our initial development of EGRIFTA® focused on the lipolytic properties of the compound.
Tesamorelin’s anabolic properties have led us to pursue its development for muscle wasting in COPD patients as our second indication. COPD is characterized by progressive airflow obstruction due to chronic bronchitis or emphysema leading in certain cases to muscle wasting, a decrease of muscle mass and deterioration in functionality. We have completed a Phase 2 trial which demonstrated a statistically significant increase in lean body mass. Based upon these trial results, we intend to randomize our first patient in a new Phase 2 clinical study in the second half of 2011. Based on available market data, we estimate that in 2009, the number of diagnosed COPD patients with muscle wasting was approximately 3.1 million in the United States, France, Germany, Italy, United Kingdom, Spain and Japan.
To solidify our leadership position in the field of GRF therapeutics, we have embarked on a program to discover new generations of GRF analogues. We believe that GRF compounds have the potential to improve patient outcome in many high-value indications, such as wasting in chronic heart failure and renal failure, as well as growth deficiency with abdominal obesity. We also believe that we can improve the route of administration of GRF peptides to make them quicker and easier to use for patients. Our early-stage pipeline also includes compounds for the treatment of Acute Kidney Injury, or AKI, and certain cancers.
2.2 RECENT DEVELOPMENTS
Since the end of our most recently completed financial year, we have been engaged in the following activities:
    COPD indication for EGRIFTA®. On February 22, 2011, we announced a new clinical program in muscle wasting in COPD using tesamorelin. Tesamorelin’s anabolic properties have led us to pursue the development of tesamorelin for muscle wasting in COPD patients for its second indication. The program will be conducted in stable ambulatory COPD patients with muscle wasting in the Global Initiative for Chronic Obstructive Lung Disease, or GOLD, stage II and III severity experiencing decreased functionality in daily activities.
 
    Execution of distribution and licensing agreement for EGRIFTA® for European market. On February 3, 2011, we announced the execution, through Theratechnologies Europe Inc., of a distribution and licensing agreement with Ferrer granting it the exclusive commercialization rights of tesamorelin in Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy. For a description of this agreement, see Item 2.5.
 
    Execution of distribution and licensing agreement for EGRIFTA® for the Latin American, African and Middle Eastern Markets. On December 6, 2010, we announced the execution, through Theratechnologies Intercontinental Inc., of a distribution and licensing agreement with sanofi-aventis S.A., granting one of its subsidiaries, Sanofi Winthrop Industries, the exclusive distribution rights to EGRIFTA® in Latin America, Africa and the Middle East for the reduction

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      of excess abdominal fact in HIV-infected patients with lipodystrophy. For a description of this agreement, see Item 2.5.
2.3 THREE YEAR HISTORY
2010
    FDA approval received for EGRIFTA®. On November 11, 2010, we announced that the FDA approved EGRIFTA® as the first and only drug indicated for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy (abdominal lipohypertrophy). The FDA approval triggered a US$25 million milestone payment pursuant to our collaboration and licensing agreement with EMD Serono.
 
    Appointment of new President and Chief Executive Officer. On September 1, 2010, we announced the appointment of Mr. John-Michel T. Huss as President and Chief Executive Officer of the Company, following the retirement of Mr. Yves Rosconi, effective November 30, 2010. Mr. Huss assumed his position on December 1, 2010.
 
    Execution of research collaboration agreement with UQAM, Gestion Valeo and Transfert Plus. On November 16, 2010, we entered into a research collaboration agreement with the Université du Québec à Montréal, or UQAM, Gestion Valeo, L.P., or Gestion Valeo, and Transfert Plus, L.P, or Transfert Plus, with the goal of discovering short peptide mimics of melanotransferrin with the hope of developing a novel cancer treatment. For a description of this agreement, see “Melanotransferrin peptides (Anti-cancer compounds)” at Item 2.5.
 
    Adoption of shareholder rights plan. On February 10, 2010, we announced that our board of directors had adopted a shareholder rights plan, effective as of such date. The plan was later ratified by our shareholders at our annual meeting held on March 23, 2010. The plan is designed to provide adequate time for the board of directors and the shareholders to assess an unsolicited takeover bid for Theratechnologies, to provide the board of directors with sufficient time to explore and develop alternatives for maximizing shareholder value if a takeover bid is made, and to provide shareholders with an equal opportunity to participate in a takeover bid and receive full and fair value for their common shares. For a description of the plan, see ITEM 9.
2009
    Advisory Committee reviews NDA for tesamorelin. On November 5, 2009, we announced that the Endocrinologic and Metabolic Drugs Advisory Committee of the FDA would be reviewing our New Drug Application, or NDA, for tesamorelin in the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
 
    Filing of NDA for tesamorelin. On June 1, 2009, we announced the filing of an NDA with the FDA for tesamorelin, an analogue of the growth hormone-releasing factor, proposed for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
2008
    Closing of transaction with EMD Serono. On December 16, 2008, we announced that we closed the transaction related to the collaboration and licensing agreement with EMD Serono. As part of this transaction, we received an upfront payment of US$30 million which includes a license fee of US$22 million from EMD Serono. In addition, Merck KGaA purchased US$8 million of our common shares at a price of US$3.67 per share.

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    52-week confirmatory Phase 3 clinical trial results for tesamorelin. On December 15, 2008, we announced the 52-week results of our confirmatory Phase 3 clinical trial, evaluating the long-term safety profile of tesamorelin in patients with HIV-associated lipodystrophy. The results reported from both the 26-week confirmatory clinical study and 52-week confirmatory clinical study were consistent with the efficacy and safety profile observed in the first Phase 3 clinical study. This announcement concluded the Phase 3 clinical studies for tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
 
    Execution of collaboration and licensing agreement with EMD Serono for tesamorelin in the United States. On October 29, 2008, we announced the execution of a collaboration and licensing agreement with EMD Serono for the exclusive commercialization rights to tesamorelin in the United States for the reduction of excess abdominal fat in HIV patients with lipodystrophy. For a description of this collaboration and licensing agreement, see Item 2.5.
 
    26-week confirmatory Phase 3 clinical trial results for tesamorelin. On June 18, 2008, we announced our 26-week results of our confirmatory Phase 3 clinical trial, evaluating the efficacy of tesamorelin in patients with HIV-associated lipodystrophy. The study was powered to detect an 8% reduction in visceral adipose tissue versus placebo. The study met its primary endpoint as well as important secondary endpoints confirming the positive results obtained in our initial Phase 3 study.
 
    Execution of strategic agreement with Dr. Grinspoon. On May 15, 2008, we announced our entering into an agreement with both the MGH and Dr. Grinspoon to explore the use of tesamorelin in relative growth hormone deficient abdominally obese, or GHDAO, subjects. MGH, under the direction of Dr. Grinspoon, is the sponsor and is conducting a Phase 2 clinical trial with tesamorelin in subjects who have excess visceral adipose tissue, or VAT, with a moderate growth hormone deficiency and who are abdominally obese. We accepted to provide tesamorelin for this study and the MGH will retain the rights to the results generated by this study, and we obtained an exclusive worldwide license to commercialize any results. Dr. Grinspoon completed subject enrolment in December 2010.
 
    Initiation of process to explore strategic options. On January 29, 2008, we announced that our board of directors initiated a process to explore strategic options available to the Company to further enhance shareholder value.
 
    US patent for tesamorelin issued. On January 8, 2008, we announced that the United States Patent and Trademark Office, or USPTO, issued Patent Number 7,316,997 entitled “GH Secretagogues and Uses Thereof” to Theratechnologies. This patent covers methods of treatment of HIV-associated lipodystrophy using tesamorelin. The granting of this patent extended the patent term protection of tesamorelin in HIV-associated lipodystrophy for eight additional years, until 2023.
 
    Phase 3 first clinical trial results for tesamorelin. On December 5, 2007, we announced that the results of our first Phase 3 clinical trial using tesamorelin were published in the December 6, 2007 New England Journal of Medicine (www.nejm.org). The study, entitled “Metabolic Effects of a Growth Hormone-Releasing Factor in Patients with HIV”, outlines, in detail, the 26-week data of the trial. Top-line results of this Phase 3 trial were initially disclosed in December 2006.
 
    Preclinical work for AKI. We conducted some preclinical work on a molecule known as THG213.29 with the intent of pursuing a clinical program in AKI. Through our research and development, we discovered a new bifunctional peptide that appears to have favourable properties in the treatment of AKI in animal models of AKI. During our 2008 fiscal year, we

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      replaced THG213.29 with the new bifunctional peptide TH0673 in the event we decide to develop a clinical program for AKI.
2.4 OUR STRATEGY
Our goal is to leverage our expertise in the field of metabolism and GRF peptides to become a leading specialty pharmaceutical company with the necessary infrastructure to take innovative therapeutic products from research and development to full commercialization in worldwide markets. Key elements of this strategy include:
Maximize the global commercial potential of EGRIFTA®
In order to maximize the commercial potential of EGRIFTA® we have entered into licensing agreements with EMD Serono, Sanofi and Ferrer for different territories around the world. We intend to continue to support our commercial partners to ensure the successful commercialization of EGRIFTA® in their respective territories. This will include regulatory support, manufacture and supply of EGRIFTA®, and potential co-promotion.
We have developed a new presentation of EGRIFTA® which is quicker and easier to use than its current presentation. We are also developing a new and more concentrated formulation of tesamorelin. Compared to our current formulation, this new formulation requires a smaller volume of injection and is expected to be stable at room temperature. In addition, this new formulation could potentially be used with a new delivery device such as a pen, to facilitate patient self-administration. We expect the new presentation and the new formulation will have a positive impact on our manufacturing capacity and will significantly reduce our unit costs.
Develop tesamorelin for muscle wasting in COPD
We will be conducting a new clinical program in muscle wasting in COPD. We have demonstrated in a first Phase 2 clinical trial that tesamorelin has increased muscle mass in COPD patients. We believe tesamorelin could improve patients’ functionality in daily activities and address a significant unmet need in a large and potentially lucrative market.
Solidify our position as a leader in the field of novel GRF products
We will leverage our expertise in peptide discovery, drug development and regulatory affairs to continue our development of new peptides, primarily GRF peptides, in order to expand our portfolio of product candidates and solidify our position as a leader in this field.
Be actively involved in the commercialization of our products
We intend to retain commercial rights to our future products for indications and territories where we believe we can effectively market them. We may also co-promote EGRIFTA® in certain territories and tesamorelin in other indications.
Pursue external growth opportunities
In addition to developing products internally, we will opportunistically pursue in-licensing arrangements or acquisitions of complementary businesses, compounds or products. We will also identify and evaluate commercial growth opportunities that may include collaborations with drug delivery companies.

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2.5 OUR PRODUCT AND PRODUCT CANDIDATES
The following table provides an overview of our product and product candidates and their current stages of development:
(BAR GRAPH)
EGRIFTA® — Our Lead Product
EGRIFTA® induces the release of growth hormone which causes a reduction in excess abdominal fat (lipohypertrophy) in HIV-infected patients without reducing or interfering with subcutaneous fat, and, as such, has no clinically significant effect on undesired loss of subcutaneous fat (lipoatrophy).
EGRIFTA® is currently available in the United States as a once-daily two unit dose (two vials, each containing 1 mg of tesamorelin) of sterilized lyophilized powder to be reconstituted with sterile water for injection. To administer EGRIFTA®, 1 ml is retrieved from each vial into one syringe to prepare a single 2 ml patient self-administered subcutaneous injection. EGRIFTA® is injected under the skin into the abdomen once a day.
For the purposes of FDA approval, EGRIFTA® was evaluated in two clinical trials involving 816 HIV-infected adult men and women with lipodystrophy and excess abdominal fat. In both studies, patients treated daily with EGRIFTA® experienced greater reductions in abdominal fat as measured by CT scan and greater improvements in belly appearance distress, compared with patients receiving another injectable solution (placebo). Once the treatment was terminated, the patients’ condition reversed to its status prior to the beginning of the treatment. The most commonly reported adverse effects in the studies included reactions due to the release of endogenous hormone, such as joint pain (arthralgia), pain in the extremities, swelling in the lower limbs and muscle pain (myalgia), injection site reactions such as skin redness (erythema), itching (pruritis) and pain and clinically manageable changes in blood sugar control. Our clinical trials did not seek to measure any potential cardiovascular benefits of EGRIFTA® on cardiovascular events.
In connection with its approval, the FDA has required the following three post-approval commitments:
    to develop a single vial presentation of the existing formulation of EGRIFTA®. We have developed a new presentation of EGRIFTA® which is quicker and easier to use than its current presentation. In the new presentation, EGRIFTA® will be available as a single unit dose (one vial containing 2 mg of tesamorelin) of sterile, lyophilized powder to be reconstituted with sterile water for injection. The FDA requires that this new presentation be available by

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      November 2013 and we expect it to be commercially available before that date. The development of the new presentation is complete and the dossier is ready for regulatory submission.
    to conduct a long-term observational safety study using EGRIFTA®. The purpose of the long-term observational study required by the FDA is to evaluate the safety of long-term administration of EGRIFTA®.
 
    to conduct a Phase 4 clinical trial using EGRIFTA®. The primary purpose of the Phase 4 clinical trial is to assess whether EGRIFTA® increases the incidence or progression of diabetic retinopathy in diabetic HIV-infected patients with lipodystrophy and excess abdominal fat.
The FDA requires that the proposed protocols for the long-term observational safety study and Phase 4 clinical trial be submitted by the second quarter of 2011. Under the terms of our collaboration and licensing agreement, EMD Serono is responsible for finalizing and obtaining approval of such protocols. We will continue to support EMD Serono in developing and finalizing such protocols.
Lipodystrophy
Lipodystrophy is characterized by abnormalities in the production and storage of fat. It has two components: lipohypertrophy, abnormal and excessive 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.
Excess abdominal fat in HIV-infected patients is associated with significant health risks beyond the mortality risk of the HIV infection itself. These health risks include metabolic disturbances such as hyperlipidemia, an increase in the amount of fat in the blood (such as triglycerides and cholesterol), and hyperglycemia, an increase in the amount of sugar in the blood, characterized by insulin resistance, both of which lead to increased risks for cardiovascular disease and diabetes.
In HIV-infected patients, lipodystrophy may be caused by the viral infection itself, the use of antiretroviral therapy, or both. While there is evidence that suggests that lipoatrophy may be reduced with certain newer HIV therapies, we are not aware of any evidence showing that any currently-marketed HIV therapy reduces lipohypertrophy or the incidence of lipohypertrophy. Recent data suggest that 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 antiretroviral therapy, markers of disease severity and protease inhibitor use. Other factors include age, genetics, and gender.
Market Opportunity
Based on our analysis of 20 independent medical studies published from 2000 to 2004, we estimate that excess abdominal fat in HIV-infected patients affects approximately 29% of HIV-infected patients treated with antiretroviral therapies. According to a separate 2003 independent medical study, we estimate that an additional 12% of untreated HIV-infected patients are also affected by excess abdominal fat.
Based on the above-mentioned data, we have identified the following potential markets for EGRIFTA®.

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    United States. The United States market represents the largest commercial opportunity for EGRIFTA®. We estimate the prevalence of HIV/AIDS in the United States will rise to 1.3 million people in 2012. Of this amount, approximately 650,000 people will be treated for HIV/AIDS and, of those patients treated, approximately 190,000 will suffer from excess abdominal fat. In addition, approximately 47,000 untreated patients will suffer from excess abdominal fat.
 
    Europe. We estimate the prevalence of HIV/AIDS in Europe will rise to 1.4 million people in 2012. Of this amount, approximately 590,000 people will be treated for HIV/AIDS and, of those patients treated, approximately 170,000 will suffer from excess abdominal fat. In addition, approximately 42,000 untreated patients will suffer from excess abdominal fat.
 
    Latin America. We estimate the prevalence of HIV/AIDS in Latin America will rise to 2.2 million people in 2012. Of this amount, approximately 630,000 people will be treated for HIV/AIDS and, of those patients treated, approximately 180,000 will suffer from excess abdominal fat. This number is proportionately lower than the other territories due to a lower percentage of diagnosed and treated patients. With approximately 60,000 treated patients who will suffer from excess abdominal fat, Brazil offers the largest market in Latin America for EGRIFTA®. In addition, approximately 28,000 untreated patients will suffer from excess abdominal fat.
We estimate that the total number of patients diagnosed with and treated for HIV/AIDS who will suffer from excess abdominal fat in our primary target markets will be 540,000 in 2012. We estimate that an additional 117,000 untreated patients may develop lipohypertrophy in such markets.
The foregoing information is based on historical data from the CDC for the United States, and WHO/UNAIDS for Europe and Latin America. We used the historical growth rates derived from that data to estimate the prevalence of HIV/AIDS in 2012.
EGRIFTA® Commercialization Activities
We are working closely with EMD Serono to support the commercialization of EGRIFTA®. We are also working closely with Sanofi and Ferrer to obtain regulatory approval for and the subsequent commercialization of EGRIFTA®. Each of our commercial partners were chosen due to their commercial and regulatory capabilities in their respective territories.
          EMD Serono Agreement — United States
On October 28, 2008, we entered into a collaboration and licensing agreement granting EMD Serono the exclusive commercialization rights to EGRIFTA® for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the United States.
Under the terms of the agreement, EMD Serono has the exclusive right to conduct EGRIFTA® commercialization activities in the United States. We are responsible for the manufacturing and supply of EGRIFTA® and for the development of a new formulation. The agreement also entitles us to conduct additional clinical programs to develop tesamorelin for potential additional indications. EMD Serono has the option to commercialize products resulting from such additional clinical programs in the United States. If EMD Serono exercises this option, it will pay half of the development and regulatory costs incurred and to be incurred by us in connection with such additional clinical programs. If EMD Serono decides not to exercise its option, we have the right to commercialize tesamorelin for such indications on our own or with third parties. We also have the option to co-promote any product resulting from such clinical programs under terms and conditions to be agreed with EMD Serono. This agreement extends until the expiration of the last valid claim based on a patent right (including patent applications) controlled by us in the United States covering EGRIFTA®

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or any other product based on an additional indication for tesamorelin that EMD Serono has elected to commercialize under the agreement.
We may receive up to US$215 million in upfront and milestone payments in addition to royalties and revenues from the sale of EGRIFTA® to EMD Serono. To date, we have received US$65 million which includes an upfront payment and regulatory milestone payments of US$57 million and an equity investment of US$8 million. Future milestone payments will be made based on the achievement of certain sales milestones. We will also be entitled to receive royalties at an increasing rate based on achieving specified levels of annual net sales of EGRIFTA® in the United States.
We made our first delivery of EGRIFTA® to EMD Serono on December 13, 2010. In January 2011, EMD Serono launched EGRIFTA® in the United States. EMD Serono is executing a launch program that consists of increasing disease awareness through medical education to doctors, patient advocacy and advertising, marketing and promotion through their experienced sales force, and supporting market access through patient support, co-pay programs, reimbursement education and support for payors.
EMD Serono is responsible for establishing the sale price of EGRIFTA® in the United States. The wholesale acquisition cost has been set at US$23,900 per patient per year. We expect to receive our first royalty payments in the second quarter of 2011.
          Sanofi Agreement — Latin America, Africa and the Middle East
On December 6, 2010, we entered into a distribution and licensing agreement granting Sanofi, a subsidiary of Sanofi-aventis S.A., the exclusive commercialization rights to EGRIFTA® for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in Latin America, Africa and the Middle East.
Under the terms of the agreement, we will sell EGRIFTA® to Sanofi at a transfer price equal to the higher of a percentage of Sanofi’s net selling price and a predetermined floor price. Sanofi will be responsible for conducting all regulatory and commercialization activities for EGRIFTA® for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the territories subject to the agreement. We will be responsible for the manufacture and supply of EGRIFTA® to Sanofi. We have retained all development rights to EGRIFTA® for other indications and will be responsible for conducting development activities for any additional potential indications. We also granted Sanofi an option to commercialize tesamorelin for other indications in the territories mentioned above. If such option is not exercised, or is declined, by Sanofi, we may commercialize tesamorelin for such indications on our own or with a third party. The initial term of this agreement extends until December 2020.
          Ferrer Agreement — Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries
On February 3, 2011, we entered into a distribution and licensing agreement granting Ferrer the exclusive commercialization rights to EGRIFTA® for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries.
Under the terms of the agreement, we will sell EGRIFTA® to Ferrer at a transfer price equal to the higher of a percentage of Ferrer’s net selling price and a predetermined floor price. Ferrer will be responsible for conducting all regulatory and commercialization activities in connection with EGRIFTA® for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the territories subject to the agreement. We will be responsible for the manufacture and supply of

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EGRIFTA® to Ferrer. We have retained all development rights to EGRIFTA® for other indications and will be responsible for conducting development activities for any additional potential indications. We have the option to co-promote EGRIFTA® for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the territories. Ferrer has the option to enter into a co-development and commercialization agreement using tesamorelin for potential additional indications. The terms and conditions of such a co-development and commercialization agreement will be negotiated based on any additional program chosen for development. This agreement extends until the later of the expiration of the last valid claim based on a patent right (including patent applications) controlled by us covering a product licensed under the agreement or ten years from the date of the first commercial sale of EGRIFTA® for each country covered by the agreement.
          Unpartnered Territories
We have retained full commercial rights for EGRIFTA® in certain territories, including Canada. In territories where we do not currently have commercial partners, we may commercialize EGRIFTA® directly or in collaboration with commercial partners.
Tesamorelin — Our Lead Compound
Tesamorelin is a stabilized 44 amino acid human GRF analogue, 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. EGRIFTA® has demonstrated the ability to significantly reduce visceral adipose tissue, increase muscle mass and reduce waist circumference.
          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, or 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.

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Muscle Wasting in COPD — New Indication for Tesamorelin
We have selected COPD as our second clinical program with tesamorelin. We chose to consider muscle wasting in COPD patients with decreased functioning in daily activities for a clinical program based on the anabolic properties of tesamorelin. The goal of the program is to show an improvement in functionality in daily activities in COPD patients with loss of muscle mass.
We completed a three-month Phase 2 clinical study involving 109 stable ambulatory COPD patients. Patients were randomized to receive either 1 mg or 2 mg doses of tesamorelin, or a placebo each day. Patients treated using 1 mg or 2 mg doses of tesamorelin experienced a statistically significant increase in lean body mass compared with patients receiving a placebo. In addition to the increase in lean body mass, such patients experienced improvements in three functional measures associated with tesamorelin, particularly for the 2 mg group. The three functional measures were:
    Respiratory symptoms, as assessed by St. George’s Respiratory Questionnaire;
 
    Leg discomfort, as assessed by the Borg Scale following an exercise endurance test; and
 
    Breathing discomfort, as assessed by the Borg Scale following an exercise endurance test.
          COPD
COPD is characterized by progressive airflow obstruction due to chronic bronchitis or emphysema, two commonly co-existing lung diseases. COPD results in a limitation of the flow of air to and from the lungs resulting in a shortness of breath. In contrast to asthma, the limitation of airflow is not easily reversible and usually gets progressively worse over time.
Many COPD patients are affected by a systemic manifestation which may lead to muscle wasting. Muscle wasting (cachexia or involuntary weight loss), a decrease or thinning of the muscle mass, is associated with several abnormalities, including impaired exercise capacity and functioning and decreased muscle strength. Muscle wasting is an independent predictor of a COPD patient’s functional deterioration and mortality, and it is a common symptom in patients with moderate to severe COPD. The importance of improving not only muscle strength, but other functional parameters and quality of life is well recognized in order to improve the well being of patients with COPD and decreased functionality. We are not aware of any treatment for muscle wasting in COPD approved by any regulatory authorities.
          Market opportunity
According to independent research, 26 million adults aged 40 or over were diagnosed with COPD in the United States, France, Germany, Italy, the United Kingdom, Spain and Japan in 2009. The prevalence of COPD increases with age and is much higher in adult males. The diagnosed population is expected to increase at a compound annual growth rate of 2.5%.
Treatment varies across countries and region, however 17.9 million patients were receiving treatment for COPD management in 2009 in the United States, France, Germany, Italy, the United Kingdom, Spain and Japan. COPD can be classified using four levels of severity, from mild to very severe (stages I to IV) using the GOLD classification. Our program will focus primarily on COPD patients in GOLD stage II and III. Based on available market data, we estimate that in 2009, the number of diagnosed COPD patients in GOLD stage II and III suffering from a muscle wasting condition, with a body mass index of under 25, was approximately 3.1 million in those markets.

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          Clinical development plan
Tesamorelin’s anabolic properties have led us to pursue its development for muscle wasting in COPD patients as our second indication. This clinical development program will be conducted in stable ambulatory COPD patients, GOLD stage II and III, with muscle wasting experiencing decreased functionality in daily activities. It will include three studies:
    One Phase 2 study: This study will be a randomized, placebo controlled study in approximately 200 COPD patients with muscle wasting. Patients will be randomized to receive either one of two different dosages of tesamorelin or placebo each day for six months. We intend to randomize our first patient in this Phase 2 clinical study in the second half of 2011. The Phase 2 study will evaluate the safety and efficacy of using tesamorelin in COPD patients, GOLD stage II and III, with muscle wasting. The primary endpoint will be an increase in lean body mass. Other efficacy endpoints will be measured, such as a six minute walking distance test, exercise endurance time, and quality of life (daily activities). Safety assessments will include monitoring of adverse events and laboratory evaluations.
 
    Two Phase 3 studies: If the Phase 2 study is successful, we anticipate there will be two 12-month Phase 3 studies (one pivotal and one confirmatory) to be conducted in parallel. We expect a total of approximately 1,200 patients will be included in this program.
We currently believe that the clinical trials will last approximately four years and that the program will cost between approximately $55 and $65 million. A significant portion of the costs will be borne by our commercial partners if they elect to exercise their option to commercialize under their respective agreements.
Other Product Candidates
          Novel Growth Hormone-Releasing Factor Analogues
We are working on several novel analogues of GRF that have improved chemical stability compared to tesamorelin. To date, we have synthesized over 80 different compounds. We believe that GRF compounds have the potential to improve patient outcome in many high-value indications. We also believe we can improve the route of administration of GRF peptides to make them quicker and easier to use for patients.
          Compounds for Acute Kidney Injury
AKI is the acute deterioration of kidney function leading to increased urea waste products and electrolyte imbalance in blood. AKI is common among hospitalized patients and complicates the management of patients in intensive care units. According to a 2008 medical publication, AKI affected 3% to 7% of patients admitted to hospital and approximately 25% to 30% of patients in the intensive care unit within days of major surgery. The incidence of AKI was approximately 600,000 to 900,000 patients in the United States per year. Despite hospitalization and renal replacement, the mortality rate is 50% to 60% for dialyzed patients. We believe that hemodialysis is the only approved treatment for post-surgical AKI.
We have identified AKI as a potential clinical program for internal development. We have developed novel peptides specifically tailored for the prevention or treatment of AKI. One of these peptides, TH0673, is a peptide that is currently in preclinical development. We have tested TH0673 in animal models of AKI and have found that it increases creatinine clearance, improves excretion of nitrogenous waste compounds and limits kidney damage. We expect to have additional preclinical results in AKI in the first half of 2011.

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          Other Discovery Activities — Melanotransferrin Peptides (Anti-cancer compounds)
In November 2010, we entered into a discovery and collaboration agreement with the UQAM, Gestion Valeo and Transfert Plus in connection with research led by Dr. Richard Béliveau seeking to discover short peptide mimics of melanotransferrin for the development of a new cancer treatment.
Melanotransferrin is related to the transferrin family of proteins and is expressed normally in melanocytes, but also in several cancer cells. Dr. Béliveau’s research has demonstrated that soluble melanotransferrin reduces cell migration, invasion and angiogenesis, which are hallmarks of tumorigenesis and metastasis. We have identified small peptides from the melanotransferrin protein which could replicate the functions of the full length protein. Currently, we are optimizing the peptides for better pharmaceutical properties so that the optimized peptides can be tested in animal models of cancer and tumor angiogenesis.
2.6 INTELLECTUAL PROPERTY
Our Current Patent Portfolio
Our current patent portfolio is comprised of patents and patent applications for the following compounds:
          Tesamorelin
    In the United States, we own a patent covering the composition of matter (tesamorelin), which is scheduled to expire in 2015. We have applied for a patent term extension requesting an extension of five years to this patent term. If our request for patent term extension for the entire five year term is granted, the patent protection for tesamorelin in the United States would be extended until 2020. In addition, we own an issued United States patent relating to the use of tesamorelin in the treatment of HIV-associated lipodystrophy, which is scheduled to expire in 2023. Because tesamorelin qualifies as a new chemical entity, we benefit from data protection for a five year period for EGRIFTA® ending November 2015. See “Regulatory Exclusivity”.
 
    In Europe, tesamorelin is covered by granted patents scheduled to expire in 2016. In the event of receipt of marketing approval from the European Medicines Agency, or EMA, we intend to apply for supplementary protection certificates, or SPCs, in certain countries which, if granted, could extend the patents covering tesamorelin in the countries where SPCs are approved until 2021. We have also filed two patent applications relating to the use of tesamorelin in the treatment of HIV-associated lipodystrophy where, if such patents were granted, they would be scheduled to expire in 2023 and 2025, respectively. As discussed below, the first time a new product is approved in Europe, the regulation provides for a 10 year exclusivity period. Assuming approval in 2012, we would benefit from protection until 2022. See “Regulatory Exclusivity”.
 
    We have obtained a patent covering the composition of matter (tesamorelin) in Brazil that expires in 2019.
 
    We have filed patent applications for the therapeutic indication of muscle wasting in COPD in several countries, including the United States, where, if such patents were granted, they would be scheduled to expire in 2024, with the exception of a recently-granted patent in the United States which benefits from a patent term adjustment extending its term to 2027.

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    We have filed United States and international patent applications, for the new formulation of tesamorelin where, if such patents were granted, they would be scheduled to expire in 2028.
 
    We have filed United States and international Patent Cooperation Treaty applications, relating to combination therapies of tesamorelin with certain drugs indicated for the treatment of HIV which, if patents issued from these applications were granted, would be scheduled to expire in 2030.
 
      Novel GRF Peptides
 
    We have recently filed a United States provisional patent application relating to new GRF analogues. Patents claiming priority to this application may be pursued and, if such patents were granted, they would be scheduled to expire in 2032.
            AKI
    We have filed patent applications in several countries, including the United States, relating to our peptide TH0673 and related peptides, and their use in the treatment of AKI, where, if such patents were granted, they would be scheduled to expire in 2028.
Our Trademarks & Other Intellectual Property
EGRIFTA® is the trademark used for tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy. Trademark registration in the United States necessitates a prior commercial use in the territory in order to be granted. We are in the process of filing the declaration of use to obtain trademark registration.
We have obtained registration for EGRIFTA® in Europe, Japan, Australia, Norway, Switzerland, Mexico and Lebanon and have filed trademark applications for this trademark in other countries. The use of the trademark in each jurisdiction generally requires the approval of the regulatory authorities in such jurisdictions.
Other trademarks related to tesamorelin have been filed as part of our business strategy. We have also reserved certain domain names in order to support future activities.
Our Policy on Intellectual Property
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:
    perform surveillance of third party patents and patent applications in order to identify any third party patent or third party patent application which, if granted, could be infringed by our activities;
 
    where practicable, file patent applications for any new and patentable invention, development or improvement in the United States and in other countries;
 
    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;

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    register domain names in countries of interest; and
 
    maintain our intellectual property rights by paying government fees as may be necessary to ensure such rights remain in force.
Regulatory Exclusivity
The regulatory regimes of the United States and Europe may provide market exclusivity for a pharmaceutical product. Data protection and patent term extension provide a patent holder with additional protection against third parties who may wish to commercialize a product similar to an approved product.
          Data Protection
In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, awards, in certain circumstances, non-patent marketing exclusivities to pioneer drug manufacturers. The Hatch-Waxman Act provides five years of non-patent marketing exclusivity within the United States to an applicant who gains approval of a New Drug Application, or NDA, for a “new chemical entity,” a drug for which the FDA has not previously approved any other new drug with the same active moiety, which is the molecule or ion responsible for the action of the drug. This marketing exclusivity prevents the FDA from approving, in certain circumstances, any abbreviated new drug application for a generic drug or any 505(b)(2) NDA. See “Government Regulation — United States — FDA Process” below.
In Europe, when a product based on a new compound is approved, the EMA grants a 10 year exclusivity period beginning on the date of such approval. When the same compound is approved for a second indication within the first eight years of this 10 year period, the exclusivity period is extended by one year, providing a total exclusivity period of 11 years for the compound.
          Patent Term Extension
In the United States, the Hatch-Waxman Act permits patent term extension for one patent per approved drug of up to five years for patent term lost during product development and the FDA regulatory review process. However, patent term extension cannot extend the remaining patent term beyond a total of 14 years from the product’s approval date. The patent term extension period is generally one-half the time between the effective date of an Investigational New Drug Application, or IND, and the submission date of an NDA plus the time between the submission date of an NDA and the NDA. We have applied for a patent term extension with respect to tesamorelin.
In the European Union, SPCs for medicinal products are governed by Regulation 469/2009 with effect from May 2009. An SPC has the effect of extending the term of a patent relating to protection of a particular medicinal product by compensating the patentee for some lost patent protection caused by the length of time taken to obtain marketing authorisation for the product in question. An SPC is a national right, available in member states of the European Union by application to the national patent office of each state for which a certificate is desired. The SPC must be based on a patent but since an SPC is only granted in respect of a very specific active ingredient in a product, it is generally of rather more limited scope than the patent on which it is based. Typically, the term of the SPC is equal to the period which has elapsed between filing of the patent application and grant of the first European Union marketing authorisation less five years. The term of the SPC may not, generally, exceed five years. However, some European Union legislation regarding pediatric medicines provides for a six-month extension of the basic SPC term in certain circumstances. The SPC takes effect on expiry of the basic patent. In each country for which SPC protection is sought, a separate SPC application must

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be filed within six months of the grant of the first marketing authorisation in that country for the active ingredient(s) in question.
2.7 MANUFACTURING
We do not own or operate commercial scale manufacturing facilities for the production of our product or any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturers for all of our required raw materials, drug substance and finished product for clinical trials and commercial sale.
We are responsible for the manufacture and supply of tesamorelin to ensure the commercialization of EGRIFTA® under our agreements with EMD Serono, Sanofi and Ferrer. As part of our agreement with EMD Serono, we are required to maintain certain levels of inventory. In order to fulfill these contractual obligations, we have negotiated and entered into various third-party supply agreements.
Bachem
We have an agreement with Bachem Inc., an American subsidiary of Swiss-based Bachem AG, providing for the manufacturing and supply of the active pharmaceutical ingredient of tesamorelin for clinical programs and EGRIFTA® for commercial sale in the United States.
Draxis
We have an agreement with Draxis Pharma, a division of Draxis Specialty Pharmaceuticals, Inc., or Draxis, providing for the manufacture and supply of the finished form of tesamorelin for clinical programs and EGRIFTA® for commercial sale. Under our agreement, Draxis must fill vials with tesamorelin, lyophilize it, label and package those vials and deliver them to locations in accordance with our instructions.
We have identified and initiated discussions with possible secondary suppliers of these products. We believe that there are alternate sources of supply for these products that will be able to satisfy our needs and will be able to receive FDA qualification. We expect our new presentation as well as our new formulation of tesamorelin will significantly increase our production capacity for EGRIFTA® due to the smaller quantity of vials, shorter manufacturing process times and increased batch sizes.
We have also entered into the following manufacturing agreements as a result of our undertakings under the distribution and licensing agreement with EMD Serono wherein we agreed to supply the injection tool kits for EGRIFTA® namely:
Becton Dickinson
On November 6, 2009, we entered into a supply agreement with Becton Dickinson Canada Inc., or Becton Dickinson. Under this agreement, Becton Dickinson is responsible for supplying us with syringes and hypodermic needles which are provided with EGRIFTA® in the United States.
Hospira
On March 26, 2009, we entered into a development and supply agreement with Hospira Worldwide, Inc., or Hospira. Under this agreement, Hospira is responsible for manufacturing and supplying us with sterile water for injection, filled and finished in plastic vials, in connection with the sale of EGRIFTA® in the United States.

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ABAR
On January 5, 2010, we entered into a supply agreement with Gruppo Cartotecnico ABAR Litofarma S.R.L., or ABAR, an Italian company, in order to ensure the commercial supply of pharmaceutical mass market folding boxes for the sale of EGRIFTA® in the United States.
2.8 COMPETITION
The pharmaceutical industry is characterized by intense competition and rapid innovation. Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions, many of whom have greater financial, technical and human resources than us. We believe the key competitive factors that will affect the development and commercial success of EGRIFTA® and our product candidates are efficacy, safety and tolerability profile, reliability, product acceptance by physicians and other healthcare providers, convenience of dosing, price and reimbursement. Also, the development of new treatment methods for the indications we are targeting could render our drugs non-competitive or obsolete. We are not aware of other GRF products being commercialized or in development for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy although we may face indirect competition for EGRIFTA® from other drugs that may be prescribed by physicians. The use of these other drugs for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy has not been approved by the FDA nor any other regulatory authority.
We believe that competition in the area of muscle wasting in COPD patients is limited. We are aware of one other compound which has completed a Phase 1 clinical study in COPD muscle wasting (GOLD stage I and II). We may face indirect competition from other drugs such as anabolic steroids, testosterone and growth hormone that may be prescribed by physicians. However, these drugs have not been approved by the FDA for muscle wasting in COPD.
2.9 GOVERNMENT REGULATION
Overview
The research, development, manufacture and marketing of pharmaceutical products are governed by various governmental authorities throughout the world to ensure efficacy and safety.
Governmental authorities in the United States at the federal, state and local level, 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® and other product candidates that we are developing. 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. Failure to comply with the applicable United States or foreign requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. Sanctions could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.
On November 10, 2010, the FDA approved EGRIFTA® as the first approved treatment for excess abdominal fat in HIV-infected patients with lipodystrophy. Our other product candidates must receive regulatory approval from the FDA or other relevant foreign regulatory authorities before they may legally be marketed in the United States or other countries.

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In Canada, these activities are governed by the provisions of the Food and Drugs Act and its regulations, which is enforced by the Therapeutic Products Directorate of the Health Products and Food Branch of Health Canada. We have not yet applied to market EGRIFTA® in Canada.
United States — FDA Process
Before new pharmaceutical products may be sold in the United States, clinical trials of the product candidates must be conducted and the results submitted to the FDA for approval. The drug approval process requires, among other things, a demonstration of product safety and efficacy. Generally, a demonstration of safety and efficacy includes preclinical testing and clinical trials of product candidates. The testing, manufacture and marketing of pharmaceutical products in the United States requires the approval of the FDA. The FDA enforces laws and regulations which apply to preclinical testing, clinical trials, and manufacture of these products. The drug approval process in the United States is described in brief below.
Pre-Clinical Testing: Before testing of any compounds with potential therapeutic value in human subjects may begin in the United States, stringent government requirements for pre-clinical data must be satisfied. Pre-clinical testing includes laboratory evaluations of product pharmacology and toxicity in animal studies of the drug candidates. In parallel, the chemistry of the drug candidates must be elucidated and their manufacturing, including formulation and stability, clearly defined and controlled.
Investigational New Drug Application: Among other things, pre-clinical testing results obtained from animal studies and in vitro studies, are submitted to the FDA as part of an IND application and are reviewed by the FDA prior to the commencement of human clinical trials. An IND sponsor must also include a protocol detailing, among other things, the objectives of the initial clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the initial clinical trial lends itself to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. Unless the FDA objects to an IND (referred to as a clinical hold), the IND becomes effective 30 days following its receipt by the FDA. Once trials have commenced, the FDA may stop the trials at any time by placing them on “clinical hold” because of safety concerns or noncompliance. If the FDA issues a clinical hold, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical study can begin. Accordingly, we cannot be sure that submission of a IND will result in the FDA allowing clinical trials to begin or that, once began, issues will not arise that suspend or terminate such trials.
Clinical Trials: Clinical trials involve the administration of the drug to healthy human volunteers or to patients under the supervision of a qualified investigator pursuant to an FDA-approved protocol. Each clinical trial must be conducted under the auspices of an Institutional Review Board, or IRB, that considers, among other things, ethical factors, the safety of human subjects and approves the patient informed consent, which must be agreed to by all participants prior to participation in the clinical trial. Once an IND is in effect, each new clinical protocol and any amendments to the protocol must be submitted to the FDA for review, and to the IRBs for approval. Protocols detail, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety. Human clinical trials are typically conducted in three sequential phases, although the phases may overlap with one another.
All phases of clinical trials must be conducted in conformance with Good Clinical Practices, or GCP, which are ethical and scientific quality standards for conducting, recording, and reporting clinical trials to assure that the rights, safety, and well-being of trial participants are protected, and the FDA’s regulations for the protection of human subjects.
Phase 1 Clinical Trials: Phase 1 clinical trials represent the initial administration of the investigational drug to a small group of healthy human subjects or, more rarely, to a group of select patients with the

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targeted disease or disorder. The goal of Phase 1 clinical trials is typically to test for safety, dose tolerance, absorption, bio-distribution, metabolism, excretion and clinical pharmacology and, if possible, to gain early evidence regarding efficacy.
Phase 2 Clinical Trials: Phase 2 clinical trials involve a small sample of the actual intended patient population and seek to assess the efficacy of the drug for specific targeted indications, to determine dose response and the optimal dose range and to gather additional information relating to safety and potential adverse effects.
Phase 3 Clinical Trials: Once an investigational drug is found to have some efficacy and an acceptable safety profile in the targeted patient population, Phase 3 clinical trials are initiated to establish further clinical safety and efficacy of the investigational drug in a broader sample of the patient population with the target disease or disorder at geographically dispersed study sites in order to determine the overall risk-benefit ratio of the drug and to provide an adequate basis for regulatory approval and product labeling.
New Drug Application: All data obtained from a comprehensive development program including research and product development, manufacturing, pre-clinical and clinical trials and related information are submitted in an NDA to the FDA. In addition to reports of the trials conducted under the IND, the NDA includes information pertaining to the preparation of the new drug, chemistry manufacturing and controls, or CMC, analytical methods, details of the manufacture of finished products and proposed product packaging and labeling. The submission of an application is no guarantee that the FDA will find the application complete and accept it for filing. The FDA may refuse to file the application and request additional information rather than accept the application for filing, in which case, the application must be resubmitted with the supplemental information. The re-submitted application is also subject to review before the FDA accepts it for filing. Once an application is accepted for filing, an FDA review team — medical doctors, chemists, statisticians, microbiologists, pharmacologists, and other experts — evaluates whether the studies the sponsor submitted show that the drug is safe and effective for its proposed use and whether the applicant’s manufacturing complies with Good Manufacturing Practices, or GMP, to assure and preserve the product’s identity, strength, quality and purity. As part of the approval process, the FDA will inspect the facility or facilities where the product is manufactured. The FDA review process may be extended by FDA requests for additional information or clarification. In some cases, the FDA may decide to expedite the review of new drugs that are intended to treat serious or life threatening conditions and demonstrate the potential to address unmet medical needs.
As part of its review, the FDA may refer the application to an advisory committee for evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.
Under legislation enacted in 2007, the FDA may determine that a risk evaluation and mitigation strategy, or REMS, is necessary to ensure that the benefits of a new product outweigh its risks. If required, a REMS may include various elements, such as publication of a medication guide, patient package insert, a communication plan to educate healthcare providers of the drug’s risks, limitations on who may prescribe or dispense the drug, or other measures that the FDA deems necessary to assure the safe use of the drug.
In reviewing an NDA, the FDA may grant marketing approval, request additional information or deny the application if it determines the application does not provide an adequate basis for approval. The FDA may require larger or additional clinical trials, leading to unanticipated delay or expense. Even if such additional information and data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials may be subject to different interpretation, and the FDA may interpret data differently than the applicant. The receipt of regulatory approval often

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takes a number of years, involving the expenditure of substantial resources and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. The FDA may require, as a condition of approval, restricted distribution and use, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, pre-approval of promotional materials, or restrictions on direct-to-consumer advertising or commitments to conduct additional research post-approval. The FDA will issue a complete response letter if the agency decides not to approve the NDA in its present form. The complete response letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The deficiencies may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical studies. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. In addition, changes in FDA approval policies or requirements may occur, or new regulations may be promulgated, which may result in delay or failure to receive FDA approval.
Changes to an approved product, such as adding a new indication, making certain manufacturing changes, or changing manufacturers or suppliers of certain ingredients or components requires review and approval of the FDA.
Under the Hatch-Waxman Act, the U.S. Congress created an abbreviated FDA review process for generic versions of pioneer (brand name) drug products. The Hatch-Waxman Act requires NDA applicants and NDA holders to provide certain information about patents related to the drug for listing in the FDA’s publication, “Approved Drug Products with Therapeutic Equivalence Evaluations”, commonly known as the Orange Book. The Hatch-Waxman Act allows for, under certain circumstances, an abbreviated NDA, or ANDA, where an applicant seeks to determine that its proposed product is biologically equivalent to the reference drug. ANDA applicants do not have to conduct extensive clinical trials to prove the safety or efficacy of the drug product; rather, they are required to conduct less rigorous bioequivalence testing. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, are listed as such by the FDA, and can often be substituted by pharmacists under prescriptions written for the original listed drug. In addition, in certain cases, an application for marketing approval may include information regarding safety and efficacy of a proposed drug that comes from studies not conducted by or for the applicant and for which the applicant has not obtained a specific right to reference those studies. Such applications, known as a 505(b)(2) NDA, are permitted for new drug products that incorporate previously approved active ingredients, even if the proposed new drug incorporates an approved active ingredient in a novel formulation or for a new indication. Section 505(b)(2) also permits the FDA to rely for such approvals on literature or on a finding by the FDA of safety and/or efficacy for a previously approved drug product. In addition, a 505(b)(2) NDA for changes to a previously approved drug product may rely on the FDA’s finding of safety and efficacy of the previously approved product coupled with new clinical information needed by FDA to support the change. FDA approval of the NDA or ANDA is required before marketing of the product may begin in the United States.
The Pediatric Research Equity Act, or PREA, requires NDAs (or NDA supplements) for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of administration to contain data assessing the safety and efficacy for the claimed indication in all relevant pediatric subpopulations. Data to support dosing and administration also must be provided for each pediatric subpopulation for which the drug is safe and effective. FDA may grant deferrals for the submission of data, or full or partial waivers from the PREA requirements. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation, as described below, has been granted.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or

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precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing which involves clinical trials designed to further assess a drug safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized.
Post-Approval Studies and Registries: Post-approval studies, also referred to as Phase 4 clinical trials are studies that are conducted after a product has been approved. These trials can be conducted for a number of purposes, including to collect long-term safety information or to collect additional data about a specific population. As part of a product approval, the FDA may require that certain Phase 4 studies be conducted post-approval, and in these cases these Phase 4 studies are called post-marketing commitments.
Adverse Event Reporting: Regulatory authorities track information on side effects and adverse events reported during clinical studies and after marketing approval. Non-compliance with FDA safety reporting requirements may result in FDA regulatory action that may include civil action or criminal penalties. Side effects or adverse events that are reported during clinical trials can delay, impede or prevent marketing approval. Similarly, adverse events that are reported after marketing approval can result in additional limitations being placed on the product’s use and, potentially, withdrawal or suspension of the product from the market. Furthermore, in September 2007 the Food and Drug Administration Amendments Act of 2007 was enacted, which provides the FDA with expanded authority over drug products after approval. This legislation enhances the FDA’s authority with respect to post-marketing safety surveillance including, among other things, the authority to require additional post-approval studies or clinical trials and mandate label changes as a result of safety findings, including the development and implementation of a REMS.
          Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a “rare disease or condition,” which is a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug available in the United States for this type of disease or condition will be recovered from sales in the United States of the drug. Orphan product designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in, or shorten the duration of the regulatory review and approval process.
If a drug that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive approval of different drugs for the indication for which the orphan product has exclusivity or may obtain approval for the same drug but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one of our product candidates for seven years if a competitor obtains approval of the same drug or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease. If a drug designated as an orphan drug receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity. Orphan drug status in the European Union has similar but not identical benefits in the European Union.

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          Expedited Development and Review Programs
The FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs that meet certain criteria. Specifically, new drugs are eligible for fast track designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. Unique to a fast track product, the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.
Any product submitted to the FDA for market, including a fast track program, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug designated for priority review in an effort to facilitate the review. Additionally, a product may be eligible for accelerated approval. Drug products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical studies. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. Fast track designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process.
Non-U.S. Regulation
In addition to regulations in the United States, we will be subject to a variety of regulations governing clinical studies and commercial sales and distribution of our products in other jurisdictions around the world. Whether or not we obtain FDA approval for a product, we must obtain approvals from the comparable regulatory authorities of foreign countries before we can commence clinical studies or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement vary greatly from country to country. In some international markets, additional clinical trials may be required prior to the filing or approval of marketing applications within the country.
In the European Union, medicinal products must be authorized either through the decentralized procedure by the competent authorities of the European Union Member States, or through the centralized procedure by the European Commission following an opinion by the EMA. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The centralized procedure is compulsory for medicines produced by certain biotechnological processes, products with a new active substance indicated for the treatment of certain diseases such as neurodegenerative disorder or diabetes and products designated as orphan medicinal products, and optional for those products which are highly innovative or for which a centralized process is in the interest of patients. The decentralized approval procedure provides for approval by one or more “concerned” member states based on an assessment of an application

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performed by one member state, known as the reference member state. Under the decentralized approval procedure, an applicant submits an application, or dossier, and related materials (draft summary of product characteristics, draft labeling and package leaflet) to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state objects to approval of the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points may eventually be referred to the European Commission, whose decision is binding on all member states. In many European Union countries, pricing and reimbursement negotiations must also take place before the product is sold in their national market between the company marketing the product and the competent national authorities.
In order to obtain approval for commercializing new drugs in Canada, we must satisfy many regulatory conditions. We must complete preclinical studies in order to file a Clinical Trial Application, or CTA, in Canada. We then receive different clearance authorizations to proceed with Phase 1 clinical trials, which can then lead to Phase 2 and Phase 3 clinical trials. Once all three phases of trials are completed, we file a registration file named a New Drug Submission, or NDS, in Canada. If the NDS demonstrates that the product was developed in accordance with the regulatory authorities’ rules, regulations and guidelines and demonstrates favourable safety, efficacy and receives a risk/benefit analysis, then the regulatory authorities issue a notice of compliance, which allows us to market the product.
Good Manufacturing Practices
The FDA, the EMA, the competent authorities of the European Union Member States and other foreign regulatory agencies regulate and inspect equipment, facilities, and processes used in the manufacturing of pharmaceutical and biologic products prior to approving a product. Among the conditions for NDA or equivalent foreign approval is the requirement that the prospective manufacturer’s quality control and manufacturing procedures adhere to the FDA’s or other competent authorities’ current GMP. Before approval of an NDA or equivalent foreign approval, the FDA or other competent authority may perform a pre-approval inspection of a manufacturing facility to determine its compliance with GMP and other rules and regulations. In complying with GMP, manufacturers must continue to expend time, money and effort in the area of production and quality control to ensure full technical compliance. Similarly, NDA or equivalent foreign approval may be delayed or denied due to GMP non-compliance or other issues at contract sites or suppliers included in the NDA or equivalent foreign approval, and the correction of these shortcomings may be beyond our control. Facilities are also subjected to the requirements of other government bodies, such as the U.S. Occupational Safety & Health Administration and the U.S. Environmental Protection Agency.
If, after receiving clearance from regulatory agencies or competent authorities, a company makes certain changes in manufacturing equipment, location, or process, additional regulatory review and approval may be required. Our third-party suppliers must adhere to GMP and product-specific regulations enforced by the FDA or other competent authorities following product approval. The FDA, the European Union and other national competent authorities and regulatory agencies also conduct regular, periodic visits to re-inspect equipment, facilities and processes following the initial approval of a product. If, as a result of these inspections, it is determined that our suppliers’ equipment, facilities or processes do not comply with applicable regulations and conditions of product approval, regulatory agencies may seek civil, criminal or administrative sanctions and/or remedies against them, including the suspension of manufacturing operations.

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Good Clinical Practices
The FDA, the EMA and other competent authorities promulgate regulations and standards, commonly referred to as GCP, 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. The FDA, the European Union and other foreign national competent authorities and regulatory agencies enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites. We rely on third-party service providers to conduct our clinical trials. If our study sites fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and relevant regulatory agencies may require us to perform additional clinical trials before approving our marketing applications.
Good Laboratory Practices
The FDA and other regulatory authorities promulgate regulations and standards, commonly referred to as Good Laboratory Practices, or GLP, for the conduct of non-clinical, commonly referred to as “preclinical,” non-human studies to provide a framework within which laboratory studies are planned, performed, monitored, recorded, reported and archived. Compliance with GLP is intended to assure regulatory authorities of the quality and integrity of the results obtained during the preclinical studies. Before we may test our product candidates on humans in clinical trials, we must first conduct preclinical testing, including animal studies, in accordance with GLP. The FDA or other regulatory authorities may inspect the testing facilities where our pre-clinical studies are conducted. The results of preclinical studies in the United States, Europe or other countries, not conducted in accordance with GLP, might be inadmissible in support of an NDA in the United States, or comparable applications in other countries.
United States Sales and Marketing
Our commercial partner, EMD Serono, will be subject to various United States regulations relating to the sales and marketing of EGRIFTA® in the United States. The FDA regulates all advertising and promotion activities for products under its jurisdiction both prior to and after approval. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA actively enforces the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions. The FDA does not regulate the practice of medicine by physicians in their choice of treatment, but FDA regulations do impose stringent restrictions on manufacturers’ communications regarding off-label uses. Failure to comply with applicable FDA requirements may subject a company to adverse publicity, enforcement action by the FDA, corrective advertising, and the full range of civil and criminal penalties available to the FDA.
Marketing of EGRIFTA® within the United States is also subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations and very few court decisions addressing industry practices, it is possible that our commercial partners’ practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent.

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In addition, several states require that companies implement compliance programs or comply with industry ethics codes, adopt spending limits, and report to state governments any gifts, compensation, and other remuneration provided to physicians. The recently enacted health care reform legislation will require record-keeping and disclosure to the federal government of payments to physicians commencing in 2012. Any activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federal health care programs (including Medicare and Medicaid). If the government were to allege or convict our commercial partner of violating these laws, our business could be harmed. In addition, there is ability for private individuals to bring similar actions.
Further, there are an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities.
2.10 PHARMACEUTICAL PRICING AND REIMBURSEMENT
In the United States and in other countries, sales of EGRIFTA® and our other product candidates will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities (such as the Centers for Medicare & Medicaid Services in the United States), managed care providers, private health insurers and other organizations. We believe EGRIFTA® will achieve a high degree of physician and payor acceptance, driven by our product’s safety and efficacy, the lack of approved alternative therapies for these patients and the prominent medical and social need to treat HIV/AIDS patients.
However, 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 product candidates. We, or our commercial partners, may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of EGRIFTA® or our other product candidates. EGRIFTA® or our other product candidates 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 to sell EGRIFTA® or our other product candidates on a competitive and profitable basis.
United States
Pursuant to our agreement with EMD Serono, they are responsible for identifying and obtaining possible reimbursements under such government programs in the United States. The U.S. Congress and state legislatures from time to time propose and adopt initiatives aimed at cost containment, which could impact our ability to sell our products profitably. For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, and the associated reconciliation bill, which we refer to collectively as the Health Care Reform Law, 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 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 revises the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states once the provision is effective. Further, beginning in 2011, the new law imposes a significant annual fee on companies that manufacture or import certain branded prescription drug products and biologic agents. Substantial new provisions affecting compliance also have been enacted, which may require us, or EMD Serono, to modify our business

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practices with healthcare practitioners. We will not know the full effects of the Health Care Reform Law until applicable federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and also may increase our regulatory burdens and operating costs.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries, and included a major expansion of the prescription drug benefit under a new Medicare Part D. Medicare Part D went into effect on January 1, 2006. 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 stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, 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.
It is not clear what effect the MMA will have on the prices paid for EGRIFTA® and our other product candidates. Some studies indicate that Part D lowered the average price and increased the utilization of prescription drugs by Medicare beneficiaries. 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 the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.
There are also laws that govern a company’s eligibility to participate in Medicare and Medicaid reimbursements. For example, a company may be debarred from participation if it is found to have violated federal anti-kickback laws, which could have a significant effect on a company’s ability to operate its business.
The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations, and additional legislative proposals. Indeed, 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. At the present time, Medicare is prohibited from negotiating directly with pharmaceutical companies for drugs. However, the U.S. Congress is considering passing legislation that would lift the ban on federal negotiations. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could harm our business, financial condition and results of operations.
Some third-party payors also require pre-approval of coverage for new or innovative drug therapies before they will reimburse healthcare providers that use such therapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, the announcement or adoption of these proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and operate profitably.

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Europe and other countries covered by our agreements
Outside of the United States, sales of EGRIFTA® and our other product candidates will depend in part on the availability and level of reimbursement from third-party payers. Third-party payers can be public or private or a combination of both. In order to obtain public reimbursement, prescription drugs are often evaluated by specialized bodies in a country. This process is in many cases independent of marketing approval and the time to carry out the evaluation differs in each country, often extending beyond the initial regulatory approval date of the drug.
The requirements and aspects considered during the assessment of a new prescription drug are not necessarily the same in each country and are given different weight depending on the countries’ attitudes towards providing public healthcare and the government’s willingness to pay for these new drugs. We or our commercial partners could be required to conduct specific health economic and other studies or analyses in order to satisfy such requirements. The decision to comply with such requirements will depend on the prospects of obtaining a positive opinion and the costs involved in the process and the profitability of the market.
In many jurisdictions, pricing plays an important role in the evaluation of prescription drugs for reimbursement and in most cases, there are price controls that can include, but are not limited to, reference pricing to drugs sold within the country and in other countries, the evaluation of what a fair price would be based on the condition that is being treated and innovative quality of the new drug.
Many countries, particularly in Europe, have initiated cost-cutting measures which have been reflected in reduced budgets for drugs, higher discounts imposed on manufacturers and price negotiations between authorities and manufacturers among other actions. We expect the current reimbursement evaluation process and pricing policies to keep evolving in ways that we may not foresee.
In Latin America, Brazil has a formal price procedure through Agência Nacional de Vigilância Sanitoria (ANVISA) which determines the price of a pharmaceutical based on five reference countries, including the United States. However, there is uncertainty in pricing of pharmaceutical drugs in Latin America in general.
Pursuant to our agreements with Sanofi and Ferrer, each is responsible for identifying and obtaining possible reimbursements under such government programs in their respective territories.
2.11 EMPLOYEES
As at November 30, 2010, we had 99 employees, all of whom were employed in Canada. All of our employees are engaged in administration, finance, research and development, regulatory and business development functions. None of our employees are unionized. We believe the relations with our employees are good.
2.12 FACILITIES
We carry out our activities at 2310 Alfred-Nobel Boulevard in the Technoparc Montréal in Ville Saint-Laurent, Québec, Canada. We lease a 36,400 square-foot building, which houses both offices and laboratories which enable us to conduct small-scale peptide manufacturing, discovery and manage preclinical and clinical research.
The facilities contain laboratories which enable us to conduct small-scale peptide manufacturing, discovery and preclinical research. Peptide compounds are synthesized by our pharmaceutical development department using manual and semiautomatic methods with reactors of different sizes (from 50 to 8000 ml) and also a 12-channel automated peptide synthesizer. The peptides are purified using preparative high performance liquid chromatography, or HPLC, comprising either the Dynamic

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Axial Compression column, or a number of pre-packed columns. The final peptides are dried to a solid form using lyophilization equipment. The analyses on the quality of the peptides are done using a variety of equipment including HPLC instruments Agilent 1100 and 1200, UV spectrophotometers and a water content analyzer.
We also have discovery and preclinical research laboratories which include two cell culture rooms and several chemical hoods. A Mesoscale chemiluminometer (Sector PR100) is used for sensitive immunological and cell-based assays. Several HPLC instruments for preformulation and purity determinations, scintillation spectrophotometers for radioactivity measurements, and fluorospectrophotometers and colorimetric plate readers for cell-based screens and immunoassays enable in-house discovery and preclinical research. A designated laboratory section is equipped to conduct studies according to GLP.
2.13 ENVIRONMENT
To our knowledge, at our current development stage, environmental protection requirements do not have a significant financial or operational impact on our capital expenditures, income or competitive position within the normal course of our operating activities.

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ITEM 3 RISK FACTORS
Before you invest in our common shares, you should understand the high degree of risk involved. You should consider carefully the following risks and uncertainties described below before you decide to purchase our common shares. 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 adversely affect our business, financial condition, operating results or prospects. As a result, the trading price of our common shares could decline and you could lose all or part of your investment.
3.1 RISKS RELATED TO THE COMMERCIALIZATION OF OUR PRODUCT AND PRODUCT CANDIDATES
          Our commercial success depends largely on the commercialization of EGRIFTA®; the failure of EGRIFTA® to obtain commercial acceptance would have a material adverse effect on us.
Our ability to generate revenues in the future is primarily based on the commercialization of EGRIFTA® for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy. In the short-term, these revenues should be primarily derived from the U.S. market alone. Although we have entered into a collaboration and licensing agreement with EMD Serono for the commercialization of EGRIFTA® in the United States, there can be no assurance that EGRIFTA® will be successfully commercialized in the United States, or in any other country. Although we are developing other peptides, all of them are at earlier stages of development and none of them may reach the clinical trial phase, obtain regulatory approval or, even if approved, be successfully commercialized.
The overall commercialization success of EGRIFTA® for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy will depend on several factors, including:
    receipt of regulatory approvals for EGRIFTA® from regulatory agencies in the territories other than the United States in which we wish to expand the commercialization of tesamorelin;
 
    market acceptance of EGRIFTA® by the medical community, patients and third-party payors (such as governmental health administration authorities and private health coverage insurers);
 
    the amount of resources devoted by our commercial partners to commercialize EGRIFTA® in their respective territories;
 
    maintaining manufacturing and supply agreements to ensure the availability of commercial quantities of EGRIFTA® through validated processes;
 
    the number of competitors in our market; and
 
    protecting and enforcing our intellectual property and avoiding patent infringement claims.
The inability to successfully commercialize EGRIFTA® in the United States for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the short term would delay our capacity to generate revenues and would have a material adverse effect on our financial condition and operating results.

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          We are or will be dependent on a limited number of collaboration and licensing agreements for the commercialization of EGRIFTA® in the United States, Europe, Latin America, Africa and the Middle East. These agreements place the commercialization of EGRIFTA® in these markets outside of our control.
Although our collaboration and licensing agreements with EMD Serono, Sanofi and Ferrer contain provisions governing their respective responsibilities as partners for the commercialization of EGRIFTA® in their respective territories, our dependence on these partners to commercialize EGRIFTA® is subject to a number of risks, including:
    our limited control of the amount and timing of resources that our commercial partners will be devoting to the commercialization, marketing and distribution of tesamorelin, including obtaining patient reimbursement for EGRIFTA®, which could adversely affect our ability to obtain or maximize our royalty payments;
 
    disputes or litigation that may arise between us and our commercial partners, which could adversely affect the commercialization of tesamorelin, all of which would divert our management’s attention and our resources;
 
    our commercial partners not properly defending our intellectual property rights or using them in such a way as to expose us to potential litigation, which could, in both cases, adversely affect the value of our intellectual property rights; and
 
    corporate reorganizations or changes in business strategies of our commercial partners, which could adversely affect a commercial partner’s willingness or ability to fulfill its obligations under its respective agreement.
Our collaboration and licensing agreements may be terminated by our partners in the event of a breach by us of our obligations under such agreements, including our obligation to supply EGRIFTA®, for which we rely on third parties. Our collaboration and licensing agreement with EMD Serono can also be terminated by EMD Serono for their convenience on 180 days notice to us. Such a termination could have an adverse effect on our revenues related to the commercialization of EGRIFTA® in the United States. In addition, EMD Serono has listed a patent held by one of its affiliates in the Orange Book under the Hatch-Waxman Act with respect to EGRIFTA® in HIV-associated lipodystrophy. In the event of a termination of our agreement with EMD Serono, EMD Serono could assert that such patent would be infringed by our continued sale of EGRIFTA® in the United States. Any such assertion would divert our management’s attention and, if successful, could expose us to damages or require us to obtain a license from EMD Serono in order to continue selling EGRIFTA® in the United States, all of which could have a material adverse effect on our results of operations, cash flows and financial conditions.
If any one of our commercial partners terminates their agreement with us or fails to effectively commercialize EGRIFTA®, for any of the foregoing or other reasons, we may not be able to replace the commercial partner and any of these events would have a material adverse effect on our business, results of operations and our ability to achieve future profitability, and could cause our share price to decline.
          We rely on third parties for the manufacture and supply of EGRIFTA® and tesamorelin and such reliance may adversely affect us if the third parties are unable or unwilling to fulfill their obligations.
The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We do not

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own or operate manufacturing facilities for the production of tesamorelin or any of our other product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on third parties to manufacture and supply all of our required raw materials, drug substance and drug product for our preclinical research, clinical trials and commercial sales. For tesamorelin for clinical studies and EGRIFTA® for commercial sales, we are currently using, and relying on, single suppliers and single manufacturers for starting materials and the final drug substance. Although potential alternative suppliers and manufacturers have been identified, we have not qualified these vendors to date and no assurance can be given that such suppliers will be qualified in the future or receive necessary regulatory approval.
Our reliance on third-party manufacturers exposes us to a number of risks. We may be subject to delays in or suspension of the manufacturing of EGRIFTA® and tesamorelin if a third-party manufacturer:
    becomes unavailable to us for any reason, including as a result of the failure to comply with GMP regulations;
 
    experiences manufacturing problems or other operational failures, such as equipment failures or unplanned facility shutdowns required to comply with GMP or damage from any event, including fire, flood, earthquake, business restructuring or insolvency; or
 
    fails to perform its contractual obligations under our agreement, such as failing to deliver the quantities requested on a timely basis.
Any delay in or suspension of the supply of EGRIFTA® could delay or prevent the sale of EGRIFTA® and, accordingly, adversely affect our revenues and results of operations. In addition, any manufacturing delay or delay in delivering EGRIFTA® may result in our being in default under our collaboration agreements. If the damage to a supplier’s manufacturer facility is extensive, or, for any reason, it does not operate in compliance with GMP or the third-party manufacturer is unable or refuses to perform its obligations under our agreement, we would need to find an alternative third-party manufacturer. The selection of a replacement third-party manufacturer would be time-consuming and costly since we would need to validate the manufacturing facility of such new third-party manufacturer. The validation process would include 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. In addition, the third-party manufacturer would have to familiarize itself with our technology. Any delay in finding an alternative third-party manufacturer of tesamorelin and EGRIFTA® could result in a shortage of such analogue or product, which could materially adversely affect our business and results of operations.
Any delay in or suspension of the supply of tesamorelin could delay or interrupt the conduct of clinical trials of our new clinical programs relating to muscle wasting in COPD.
          Even though we have received regulatory approval for EGRIFTA® in the United States, we still may not be able to successfully commercialize it if we do not gain market acceptance and the revenue that we generate from its sales, if any, may be limited.
The commercial success of EGRIFTA® or any future products for which we obtain marketing approval from the FDA or other regulatory authorities, will depend upon the acceptance of such product by the medical community, including physicians, patients and health care payors. The degree of market acceptance of any of our products will depend on a number of factors, including:
    acceptance of the product by physicians and patients as safe and effective treatments and addressing a significant unmet medical need;

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    product price;
 
    the effectiveness of our sales and marketing efforts (or those of our commercial partners);
 
    storage requirements and ease of administration;
 
    dosing regimen;
 
    safety and efficacy;
 
    prevalence and severity of side effects;
 
    competitive products;
 
    the ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors; and
 
    the willingness and ability of patients to pay out-of-pocket in the absence of third-party coverage.
If EGRIFTA® does not achieve an adequate level of acceptance by physicians, health care payors and patients, we may not generate sufficient revenue from this product, and we may not be able to achieve profitability. Our efforts, and the efforts of our commercial partners, to educate the medical community and third-party payors on the benefits of tesamorelin may require significant resources and may never be successful.
          We have no internal sales, marketing or distribution capabilities so we must rely on strategic alliance agreements with third parties for the sale and marketing of EGRIFTA® or any future products.
We currently have no internal sales, marketing or distribution capabilities and we rely on our commercial partners to market and sell EGRIFTA® in their respective territories. Our agreements with our commercial partners contain termination provisions which, if exercised, could delay or suspend the commercialization of EGRIFTA® or any future products.
In the event of any such termination, in order to continue commercialization, we would be required to build our own sales force or enter into agreements with third parties to provide such capabilities. We currently have limited marketing capabilities and we have limited experience in developing, training or managing a sales force. The development of a sales force would be costly and would be time-consuming given the limited experience we have in this area. To the extent we develop a sales force, we could be competing against companies that have more experience in managing a sales force than we have and that have access to more funds than we with which to manage a sales force. Consequently, there can be no assurance that a sales force which we develop would be efficient and would maximize the revenues derived from the sale of EGRIFTA® or any future products.
          We are substantially dependent on revenues from EGRIFTA®.
Our current and future revenues depend substantially upon sales of EGRIFTA® by our commercial partners, EMD Serono, Sanofi and Ferrer. Any negative developments relating to this product, such as safety or efficacy issues, the introduction or greater acceptance of competing products, including those marketed and sold by our commercial partners, or adverse regulatory or legislative developments, would have a material adverse effect on our business, prospects and results of

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operations. Although we continue to develop additional product candidates for commercialization, we expect to be substantially dependent on sales from EGRIFTA® for the foreseeable future. A decline in sales from this product would have a material adverse affect on our business and financial condition.
          Our levels of revenues are highly dependent on obtaining patient reimbursement for EGRIFTA®.
Market acceptance and sales of EGRIFTA® will 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 and elsewhere. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, 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 have attempted 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.
Under our agreements with our commercial partners, they are responsible for seeking reimbursement of EGRIFTA® in their respective territories and as a result we have no control over whether or what level of reimbursement is achieved.
We cannot be sure that reimbursement by insurers, government or other third parties will be available for EGRIFTA® and, if reimbursement is available, the level of reimbursement provided to patients. Reimbursement may impact the demand for, or the price of, EGRIFTA® and our future products for which we obtain marketing approval. If reimbursement is not available or is available only in limited amount, our commercial partners may not be able to successfully commercialize EGRIFTA® or our future products and it will have a material adverse effect on our revenues and royalties, business and prospects.
          A variety of risks associated with our international business relationships could materially adversely affect our business.
International business relationships in the United States, Europe, Latin America, Africa, the Middle East and elsewhere subject us to additional risks, including:
    differing regulatory requirements for drug approvals in foreign countries;
 
    potentially reduced protection for intellectual property rights;
 
    potential third-party patent rights in foreign countries;
 
    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;
 
    unexpected changes in tariffs, trade barriers and regulatory requirements;
 
    economic weakness, including inflation, or political instability, particularly in foreign economies and markets;
 
    compliance with tax, employment, immigration and labour laws for employees traveling abroad;

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    foreign taxes;
 
    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;
 
    workforce uncertainty in countries where labour unrest is more common than in the United States and Canada;
 
    production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
 
    business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires.
These and other risks of international business relationships may materially adversely affect our business, prospects, results of operations and financial condition.
          Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
In several countries, including countries which are in Europe, Latin America, Africa, and the Middle East, the pricing of prescription drugs may be subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time and delay the marketing of a product. To obtain reimbursement or pricing approval in some countries, a clinical trial that compares the cost-effectiveness of a product candidate to other available therapies may be required. If reimbursement of our product is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our commercial partners may not be willing to devote resources to market and commercialize EGRIFTA® or may decide to cease marketing such product. In such case, our business, prospects and results of operations could be materially adversely affected.
          We face competition and the development of new products by other companies could materially adversely affect our business and products.
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. Although we believe that we have no direct competitors for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy, we could face indirect competition from other companies developing and/or commercializing metabolic products and/or other products that reduce or eliminate the occurrence of lipodystrophy.
In the other clinical programs that we are currently evaluating for development, there may exist companies that are at a more advanced stage of developing a product to treat the diseases for which we are evaluating clinical programs. Some of these competitors could have access to capital resources, research and development personnel and facilities that are superior to ours. In addition, some of these competitors could be more experienced than we are in the development and commercialization of medical products and already have a sales force in place to launch new products. Consequently, they may be able to develop alternative forms of medical treatment which could compete with our products and which could be commercialized more rapidly and effectively than our products.

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          If we fail to comply with government regulations regarding the import and export of products and raw materials, we could be subject to fines, sanctions and penalties that could adversely affect our ability to operate our business.
We import and export products and raw materials from and to several jurisdictions around the world. This process requires us and our commercial partners to operate in a number of jurisdictions with different customs and import/export regulations. The regulations of these countries are subject to change from time to time and we cannot predict the nature, scope or impact of these changes upon our operations. We and our commercial partners are subject to periodic reviews and audits by U.S. and foreign authorities responsible for administering these regulations. To the extent that we or our commercial partners are unable to successfully defend against an audit or review, we may be required to pay assessments, penalties and increased duties, which may, individually or in the aggregate, negatively impact our business, operating results and financial condition.
3.2 RISKS RELATED TO THE REGULATORY REVIEW PROCESS
          Even after regulatory approval has been obtained regulatory agencies may impose limitations on the indicated uses for which our products may be marketed, subsequently withdraw approval or take other actions against us that would be adverse to our business.
Even though we have obtained marketing approval of EGRIFTA® in the United States, the FDA and regulatory agencies in other countries have the ability to limit the indicated use of a product. Also, the manufacture, marketing and sale of our products will be subject to ongoing and extensive governmental regulation in the country in which we intend to market our products. For example, although we obtained marketing approval of EGRIFTA® for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the United States, the marketing of EGRIFTA® will be subject to extensive regulatory requirements administered by the FDA, such as adverse event reporting and compliance with marketing and promotional requirements. The FDA has also requested that we comply with certain post-approval requirements in connection with the approval of EGRIFTA® for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy, namely, the development of a single vial formulation of EGRIFTA® (the development of a new presentation of the same formulation), a long-term observational safety study using EGRIFTA®; and a Phase 4 clinical trial. Although we have received marketing approval from the FDA of tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy, there can be no guarantee that regulatory agencies in other countries will approve tesamorelin for this treatment in their respective countries.
Our third party manufacturing facilities for EGRIFTA® will also be subject to continuous reviews and periodic inspections and approval of manufacturing modifications by regulatory agencies, including the FDA. The facilities must comply with GMP regulations. The failure to comply with FDA requirements can result in a series of administrative or judicial sanctions or other setbacks, including:
    restrictions on the use of the product, manufacturers or manufacturing processes;
 
    warning letters;
 
    civil or criminal penalties;
 
    fines;
 
    injunctions;
 
    product seizures or detentions;

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    import or export bans or restrictions;
 
    product recalls and related publicity requirements;
 
    suspension or withdrawal of regulatory approvals;
 
    total or partial suspension of production; and
 
    refusal to approve pending applications for marketing approval of new product candidates or supplements to approved applications.
Addressing any of the foregoing or any additional requirements of the FDA or other regulatory authorities may require significant resources and could impair our ability to successfully commercialize our product candidates.
          To date, we do not have the required regulatory approvals to commercialize EGRIFTA® outside of the United States and cannot guarantee that we will obtain such regulatory approvals or that any of our product candidates will be approved for commercialization in any country, including the United States.
The commercialization of EGRIFTA® outside of the United States and our future products first requires the approval of the regulatory agencies in each of the jurisdictions where we intend to sell such products. In order to obtain the required approvals, we must demonstrate, following preclinical and clinical studies, the safety, efficacy and quality of a product.
The rules and regulations relating to the approval of a new drug are complex and stringent. Although we have received marketing approval in the United States from the FDA for EGRIFTA®, there can be no guarantee that regulatory agencies in other territories will approve EGRIFTA® in their respective countries.
All of our product candidates are subject to preclinical and clinical studies. If the results of such studies are not positive, we may not be in a position to make any filing to obtain the regulatory approval for the product candidate or, even where a product candidate has been filed for approval, we may have to conduct additional clinical trials or testing on such product candidate in an effort to obtain results that further support the safety and efficacy of such product candidate. Such studies are often costly and may also delay a filing or, where additional studies or testing are required after a filing has been made, the approval of a product candidate.
While an application for a new drug is under review by a regulatory agency, it is standard for such regulatory agency to ask questions regarding the application that was submitted. If these questions are not answered quickly and in a satisfactory manner, the marketing approval of the product candidate subject to the review and its commercialization could be delayed or, if the questions are not answered in a satisfactory manner, denied. If EGRIFTA® is not approved by the appropriate regulatory agencies for commercialization outside of the United States, our capacity to generate revenues in the long-term will be impaired and this will have an adverse effect on our financial condition and our operating results.
Obtaining regulatory approval is subject to the discretion of regulatory agencies in each relevant jurisdiction. Therefore, even if we obtain regulatory approval from one agency, or succeed in filing the equivalent of an NDA, in other countries, or have obtained positive results relating to the safety and efficacy of a product candidate, a regulatory agency may not accept the filing or the results contained therein as being conclusive evidence of the safety and efficacy of a product candidate in order to allow us to sell the product candidate in its country. A regulatory agency may require that additional

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tests on the safety and efficacy of a product candidate be conducted prior to granting approval of such product candidate. These additional tests may delay the approval of such product candidate, can have a material adverse effect on our financial condition and results of operations based on the type of additional tests to be conducted and may not necessarily lead to the approval of the product candidate.
          We have only obtained FDA approval for EGRIFTA® and we must complete several preclinical studies and clinical trials for our other product candidates which may not yield positive results and, consequently, could prevent us from obtaining regulatory approval.
Obtaining FDA approval for the commercialization of drug products requires a demonstration through preclinical studies and clinical trials that the drug is safe and effective. All of our product candidates are at the discovery stage, except our peptide for the treatment of AKI, which is in preclinical development. In addition, in order to market tesamorelin for other indications, we will need to demonstrate its effectiveness and safety through additional studies and clinical trials. Favourable results in our trials of tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy may not be predictive of the efficacy and safety results in our Phase 2 clinical trials of tesamorelin for the treatment of muscle wasting in COPD.
If any of our preclinical studies or clinical trials fail to show positive efficacy data or result in adverse patient reactions, we may be required to perform additional preclinical studies or clinical trials, to extend the term of our studies and trials, to increase the number of patients enrolled in a given trial or to undertake ancillary testing. Any of these events could cause an increase in the cost of product development, delay filing of an application for marketing approval or result in the termination of a study or trial and, accordingly, could cause us to cease the development of a product candidate. In addition, the future growth of our business could be negatively impacted since there can be no guarantee that we will be able to develop new compounds, license or purchase compounds or product candidates that will result in marketed products.
          Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell EGRIFTA® or any of our other product candidates for which we intend to seek marketing approval.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
In the United States, the MMA changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional

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pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and sales price that we receive for EGRIFTA® or any other approved products and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
More recently, in March 2010, U.S. President Obama signed into law the Health Care Reform Law, 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 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 Medicaid drug rebates to states. Further, beginning in 2011, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. We will not know the full effects of the Health Care Reform Law until applicable U.S. federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue to apply the pressure on pharmaceutical pricing. Pressure on pharmaceutical pricing may adversely affect the amount of our royalties in the United States.
3.3 RISKS RELATED TO OUR INTELLECTUAL PROPERTY
          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 or are effectively maintained as trade secrets. We try to protect our intellectual property position by, among other things, filing patent applications related to our proprietary technologies, inventions and improvements that are important to the development of our business.
Because the patent position of pharmaceutical companies involves complex legal and factual questions, the issuance, scope, validity, and enforceability of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. 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 product candidates, 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.

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Although we have received patents from the USPTO for the treatment of HIV-related lipodystrophy with tesamorelin, there can be no guarantee that, in the other countries where we filed patent applications for the treatment of HIV-related lipodystrophy, we will receive a patent or obtain granted claims of similar breadth to those granted by the USPTO.
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. Any such litigation could also divert our research, technical and management personnel from their normal responsibilities.
Our ability to defend ourselves against infringement by third parties of our intellectual property in the United States with respect to tesamorelin for the treatment of HIV-related lipodystrophy depends, in part, on our commercial partner’s decision to bring an action against such third party. Under the terms and conditions of our collaboration and licensing agreement with EMD Serono, EMD Serono has the first right to bring an action against a third party for infringing our patent rights with respect to tesamorelin for the treatment of HIV-related lipodystrophy. Any delay in pursuing such action or in advising us that it does not intend to pursue the matter could decrease sales, if any, of tesamorelin for the treatment of HIV-related lipodystrophy and adversely affect our revenues.
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.
          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 our product candidates, and more particularly tesamorelin, 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. The fact that we own patents for tesamorelin and for the treatment of HIV-related lipodystrophy does not guarantee that we are not infringing one or more third-party patents and there can be no guarantee that we will not infringe or

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violate third-party patents and other third-party intellectual property rights in the United States or other jurisdictions.
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 favourable to us, and/or pay damages, including up to treble damages in the United Sates (for example, if found liable of wilful 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 nonexclusive, which could result in our competitors gaining access to the same intellectual property and to compete with us.
We have not been served with any notice alleging that we infringe a third-party patent, but 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. We are aware of third-party patents for the reduction of accumulation of fat tissue in HIV patients and, if a patent infringement suit was brought against us, we believe that we should not be found to infringe any valid claims of these patents. 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.
3.4 OTHER RISKS RELATED TO OUR BUSINESS
          We have a history of net losses and we may never achieve high profitability.
We have been reporting losses since our inception (except for the financial years ended November 30, 2010, 2001 and 2000) and, as at November 30, 2010, we had an accumulated deficit of $235,116,000. We do not expect to generate significant recurrent revenues sufficient to cover our overall activities in the immediate future. As a result of the foregoing, we will need to generate significant revenues to achieve profitability.

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Our profitability will depend on, among other things, our commercial partners’ ability and willingness to successfully commercialize EGRIFTA® and to obtain regulatory approval for the use of tesamorelin in the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in Europe, Latin America, Africa and the Middle East. However, there is no guarantee that our commercial partners will succeed in commercializing EGRIFTA® or that our product candidates will ever receive approval for commercialization in any jurisdiction and, accordingly, we may never sustain profitability.
          We rely on third-party service providers to conduct our preclinical studies and clinical trials and the failure by any of these third parties to comply with their obligations may delay the studies which could have an adverse effect on our development programs.
We have limited human resources to conduct preclinical studies and clinical trials and must rely on third-party service providers to conduct our studies and trials and carry out certain data gathering and analyses. If our third-party service providers become unavailable for any reason, including as a result of the failure to comply with the rules and regulations governing the conduct of preclinical studies and clinical trials, operational failures such as equipment failures or unplanned facility shutdowns, or damage from any event such as fire, flood, earthquake, business restructuring or insolvency or, if they fail to perform their contractual obligations pursuant to the terms of our agreements with them, such as failing to perform the testing, compute the data or complete the reports further to the testing, we may incur delays which may be significant in connection with the planned timing of our trials and studies which could adversely affect the timing of the development program of a product candidate or the filing of an application for marketing approval in a jurisdiction where we rely on third-party service providers to make such filing. In addition, where we rely on such third-party service provider to help in answering any question raised by a regulatory agency during its review of one of our files, the unavailability of such third-party service provider may adversely affect the timing of the review of an application and, could ultimately delay the approval. If the damages to any of our third-party service providers are material, or, for any reason, such providers do not operate in compliance with GLP or are unable or refuse to perform their contractual obligations, we would need to find alternative third-party service providers.
If we needed to change or select new third-party service providers, the planned working schedule related to preclinical studies and/or clinical trials could be delayed since the number of competent and reliable third-party service providers of preclinical and clinical work in compliance with GLP is limited. In addition, if we needed to change or select new third-party service providers to carry out work in response to a regulatory agency review of one of our applications, there may be delays in responding to such regulatory agency which, in turn, may lead to delays in commercializing a product candidate.
Any selection of new third-party service providers to carry out work related to preclinical studies and clinical trials would be time-consuming and would result in additional delays in receiving data, analysis and reports from such third-party service providers which, in turn, would delay the filing of any new drug application with regulatory agencies for the purposes of obtaining regulatory approval to commercialize our product candidates. Furthermore, such delays could increase our expenditures to develop a product candidate and materially adversely affect our financial condition and operating results.
          The conduct of clinical trials requires the enrolment of patients and difficulties in enrolling patients could delay the conduct of our clinical trials or result in their non-completion.
The conduct of clinical trials requires the enrolment of patients. We may have difficulties enrolling patients for the conduct of our future clinical trials as a result of design protocol, the size of the patient population, the eligibility criteria to participate in the clinical trials, the availability of competing therapies, the patient referral practices of physicians and the availability of clinical trial sites. Difficulty

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in enrolling patients for our clinical trials could result in the cancellation of clinical trials or delays in completing them. Once patients are enrolled in a clinical trial, the occurrence of any adverse drug effects or side effects observed during the trial could result in the clinical trial being cancelled. Any of these events would have material adverse consequences on the timely development of our product candidates, the filing of an NDA, or its equivalent, with regulatory agencies and the commercialization of such product candidates.
          We may require additional funding and may not be able to raise the capital necessary to fund all or part of our capital requirements, including to continue and complete the research and development of our product candidates and their commercialization.
We do not generate significant recurrent revenues and may need financing in order to fund all or part of our capital requirements to sustain our growth, to continue research and development of new product candidates, to conduct clinical programs, to develop our marketing and commercial capabilities and to meet our compliance obligations with various rules and regulations to which we are subject. In the past, we have been financed through public equity offerings in Canada and private placements of our equity securities and we may need to seek additional equity offerings to raise capital, the size of which cannot be predicted. However, the market conditions or our business performance may 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 equity capital by way of public or private equity offerings in the future. In such a case, we would have to use other means of financing, such as issuing debt instruments or entering into private financing or credit agreements, the terms and conditions of which may not be favourable to us. If adequate funding is not available to us, we may be required to delay, reduce, or eliminate our research and development of new product candidates, our clinical trials or our marketing and commercialization efforts to launch and distribute new products, curtail significant portions of our product development programs that are designed to identify new product candidates and sell or assign rights to our technologies, products or product candidates. In addition, 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.
          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 EGRIFTA® and our other product candidates, 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 manufacture and sale of such products may expose us to potential liability, and the industries in which our products are likely to be sold have 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 results of operations.
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 a judgment, in which case our creditors could levy against our assets. We may also be obligated to indemnify our commercial partners and 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.

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          The development and commercialization of our drugs could expose us to liability claims which could exceed our insurance coverage.
A risk of product liability claims is inherent in the development and commercialization of human therapeutic products. Product liability insurance is very expensive and offers limited protection. A product liability claim against us could potentially be greater than the available coverage and, therefore, have a material adverse effect upon us and our financial condition. Furthermore, a product liability claim could tarnish our reputation, whether or not such claims are covered by insurance or are with or without merit.
          We depend on our key personnel to research, develop and bring new products to the market and the loss of key personnel or the inability to attract highly qualified individuals could have a material adverse effect on our business and growth potential.
The operation of our business requires qualified scientific and management personnel. The loss of scientific personnel or members of management could have a material adverse effect on our business. In addition, our growth is and will continue to be dependent, in part, on our ability to hire and retain the employment of qualified personnel. There can be no guarantee that we will be able to continue to retain our current employees or will be able to attract qualified personnel to achieve our business plan.
          We may be unable to identify and complete in-licensing or acquisitions. In-licensing or acquisitions could divert management’s attention and financial resources, may negatively affect our operating results and could cause significant dilution to our shareholders.
In the future, we may engage in selective in-licensing or acquisitions of products or businesses that we believe are complementary to our products or business. There is a risk that we will not be able to identify suitable in-licensing or acquisition candidates available for sale at reasonable prices, complete any in-licensing or acquisition, or successfully integrate any in-licensed or acquired product or business into our operations. We are likely to face competition for in-licensing or acquisition candidates from other parties including those that have substantially greater available resources. In-licensing or acquisitions may involve a number of other risks, including:
    diversion of management’s attention;
 
    disruption to our ongoing business;
 
    failure to retain key acquired personnel;
 
    difficulties in integrating acquired operations, technologies, products or personnel;
 
    unanticipated expenses, events or circumstances;
 
    assumption of disclosed and undisclosed liabilities;
 
    inappropriate valuation of the acquired in-process research and development, or the entire acquired business; and
 
    difficulties in maintaining customer relations.
If we do not successfully address these risks or any other problems encountered in connection with an acquisition, the acquisition could have a material adverse effect on our business, results of operations and financial condition. Inherited liabilities of or other issues with an acquired business

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could have a material adverse effect on our performance or our business as a whole. In addition, if we proceed with an acquisition, our available cash may be used to complete the transaction, diminishing our liquidity and capital resources, or shares may be issued which could cause significant dilution to our existing shareholders.
          We may not achieve our publicly announced milestones on time.
From time to time, we publicly announce the timing of certain events to occur. These statements are forward-looking and are based on the best estimate of management at the time relating to the occurrence of such events. However, the actual timing of such events may differ from what has been publicly disclosed. Events such as completion of a clinical program, discovery of a new product candidate, filing of an application to obtain regulatory approval, beginning of commercialization of our products or announcement of additional clinical programs for a product candidate may vary from what is publicly disclosed. These variations may occur as a result of a series of events, including the nature of the results obtained during a clinical trial or during a research phase, problems with a supplier or a commercial partner or any other event having the effect of delaying the publicly announced timeline. 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 could have an adverse material effect on our business plan, financial condition or operating results.
          The outcome of scientific research is uncertain and our failure to discover new compounds could slow down the growth of our portfolio of products.
We conduct research activities in order to increase our portfolio of product candidates. The outcome of scientific research is uncertain and may prove unsuccessful and, therefore, may not lead to the discovery of new molecules and progression of existing compounds to an advanced development stage. Our inability to develop new compounds or to further develop the existing ones could slow down the growth of our portfolio of products.
3.5 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.
Since our initial public offering in Canada, our valuation and share price have had no meaningful relationship to current or historical financial results, asset values, book value or many other criteria based on conventional measures of the value of common shares. The market price of our common shares will fluctuate due to various factors including the risk factors described herein and other circumstances beyond our control.
In the past, when the market price of a stock has been volatile, shareholders have often instituted securities class action litigation against that company. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. The lawsuit could also divert the time and attention of our management.
          Our quarterly operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:
    variations in the level of revenues and royalties received related to EGRIFTA®;

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    variations in the level of expenses related to our development programs;
 
    addition or termination of clinical trials;
 
    any intellectual property infringement lawsuit in which we may become involved;
 
    regulatory developments affecting our product candidates;
 
    our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements; and
 
    the achievement and timing of milestone payments under our existing strategic partnership agreements.
If our quarterly operating results fall below the expectations of investors or securities analysts, 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.
          We do not intend to pay dividends on our common shares and, consequently, your ability to achieve a return on your 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 do not currently intend to do so for the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. 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. See “Dividend Policy”.
          Our revenues and expenses may fluctuate significantly and any failure to meet financial expectations 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:
    the inability to complete product development in a timely manner that results in a failure or delay in receiving the required regulatory approvals or allowances to commercialize product candidates;
 
    the timing of regulatory submissions and approvals;
 
    the timing and willingness of any current or future collaborators to invest the resources necessary to commercialize the product candidates;
 
    the outcome of any litigation; changes in foreign currency fluctuations;
 
    the timing of achievement and the receipt of milestone payments from current or future third parties;

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    failure to enter into new or the expiration or termination of current agreements with third parties; and
 
    failure to introduce the product candidates to the market in a manner that generates anticipated revenues.
          We may be adversely affected by currency fluctuations.
A substantial portion of our revenue is earned in U.S. dollars, but a substantial portion of our operating expenses are incurred in Canadian dollars. Fluctuations in the exchange rate between the U.S. dollar and other currencies, such as the Canadian dollar, may have a material adverse effect on our business, financial condition and operating results. We do not currently engage in transactional hedging schemes but we do attempt to hedge or mitigate the risk of currency fluctuations by actively monitoring and managing our foreign currency holdings relative to our foreign currency expenses.
          Our shareholder rights plan and certain Canadian laws could delay or deter a change of control.
Our shareholder 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 “Material Contracts-Shareholder Rights Plan Agreement”.
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.
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.

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ITEM 4 DIRECTORS AND EXECUTIVE OFFICERS
4.1 DIRECTORS
The following table lists the names of our directors, their province or state and country of residence, their principal occupation, their position or office held (if any), the year in which each of them first became a director and the number of common shares and deferred share units each of them beneficially owned, directly or indirectly, or over which they exercised control or direction as of February 21, 2011. Each elected director remains in office until the next annual meeting of shareholders, unless he resigns or his position becomes vacant following his death, destitution or for any other reason before the next annual meeting of shareholders.

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DIRECTORS
                             
                Number of   Number of
Name and Place of   Principal   Director   Common   Deferred
Residence   Occupation   Since   Shares   Share Units
Paul Pommier(1) (2) (3) (4) (5)
Québec, Canada
 
Chairman of the Board
    1997       190,100       20,998  
 
John-Michel T. Huss(4)
Québec, Canada
 
President and Chief
Executive Officer of the Company
    2010             44,248  
 
Gilles Cloutier(3) (5)
North Carolina,United States
 
Corporate Director
    2003       71,000       3,000  
 
A. Jean de Grandpré(2) (3) (4) (5)
Québec, Canada
 
Corporate Director
    1993       200,000       5,250  
 
Robert G. Goyer(3)
Québec, Canada
 
Emeritus Professor Faculty of Pharmacy Université de Montreal
    2005       10,000       5,250  
 
Gérald A. Lacoste(1) (3) (5)
Québec, Canada
 
Corporate Director
    2006       11,000       5,250  
 
Bernard Reculeau(2)
Paris, France
 
Corporate Director
    2005       18,100       3,000  
 
Jean-Denis Talon(1) (2) (4)
Québec, Canada
 
Chairman of the Board AXA Canada (Insurance Company)
    2001       60,000       3,000  
 
Luc Tanguay(4)
Québec, Canada
 
Senior Executive Vice President and Chief Financial Officer of the Company
    1993       83,000       27,572  
 
(1)   Member of the Audit Committee
 
(2)   Member of the Compensation Committee
 
(3)   Member of the Nominating and Corporate Governance Committee
 
(4)   Member of the Finance Committee
 
(5)   Member of the Strategic Review Committee

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    Biographical Notes of the Directors
Paul Pommier, MBA. Chairman of the Board. Mr. Paul Pommier worked for more than 25 years at National Bank Financial Inc., his last position being Senior Executive Vice President, Corporate and Government Finance. Throughout his career, he oversaw public and private financings, mergers and acquisitions, as well as the marketing of investment offerings. Under his leadership, National Bank Financial Inc. developed notable expertise in tax-shelter financings.
John-Michel T. Huss, MBA. President & Chief Executive Officer. John-Michel T. Huss brings more than 20 years of global experience in the pharmaceutical industry to Theratechnologies. He began his career at Merck & Co., occupying various sales and marketing positions in the United States and in Europe. In 1996, he accepted an International Product Manager position at the headquarters of F. Hoffman-La Roche, in Basel, Switzerland. Mr. Huss joined Sanofi-Synthelabo GmbH in 1999, where he held positions in Germany and in Canada. He was appointed General Manager of the Swiss subsidiary at Sanofi in 2007 (Sanofi-Synthelabo merged with Aventis in 2004), and in 2009 was promoted to the position of Chief of Staff, Office of the CEO, in Paris.
Gilles Cloutier, Ph.D. Corporate Director. Dr. Gilles Cloutier has over 30 years of experience in the pharmaceutical industry including five years with contract research organizations, providing strategic support to biotechnology and pharmaceutical companies. Dr. Cloutier has also held key positions with large North-American pharmaceutical companies, where he developed expertise in the field of clinical research. His experience includes the development and approval of several drugs in Canada, the United States and Europe. Dr. Cloutier sits on our board of directors and is also Chairman of the Fondation André Delambre for amyotrophic lateral sclerosis (ALS).
A. Jean de Grandpré, C.C., Q.C. Corporate Director. A. Jean de Grandpré contributed to Bell Canada’s significant growth as Chairman of the Board and Chief Executive Officer, and went on to become the founding Chairman of the Board and Chief Executive Officer of BCE. In recognition of these achievements, he was inducted into the Canadian Business Hall of Fame. Mr. de Grandpré also served on the boards of directors of other important Canadian and US corporations, namely Northern Telecom Limited, Chrysler Corporation, Sun Life Financial Inc. and Toronto Dominion Bank, and as a member of the international advisory boards of Chemical Bank and Goldman Sachs. He has been a member of our board of directors since our founding in October 1993 and was appointed Chairman in 1996. He resigned his position as Chairman in March 2007.
Robert G. Goyer, Ph.D. Emeritus professor, Faculty of Pharmacy of the Université de Montréal. Dr. Goyer has more than 40 years of experience in the pharmaceutical field. Dr. Goyer is the former President of Jouveinal Canada and is also a former dean of the Faculty of Pharmacy of Université de Montréal. Recognized for his broad expertise in drug development, he has served on the boards of several companies and governmental organizations. He was notably Chairman of the Advisory Committee on drug approval procedures of Health Canada’s Therapeutic Products Directorate and a member of the board of directors of the Régie de l’assurance maladie du Québec. He was Chairman of the Conseil du médicament du Québec from 2003 to 2005.
Gérald A. Lacoste, Q.C. Corporate Director. Gérald A. Lacoste is a lawyer with extensive experience in the fields of securities regulation, financing and corporate governance. He was previously Chairman of the Québec Securities Commission (now known as the Autorité des marchés financiers) and was also President and CEO of the Montreal Stock Exchange. During his career, Mr. Lacoste acted as legal counsel to the Canadian Standing Senate Committee on Banking, Trade and Commerce, he chaired the Québec Advisory Committee on Financial Institutions, and was a member of the task force on the capitalization of life insurance companies in Québec. Mr. Lacoste is currently a corporate director, actively involved in the biotechnology industry, and is a member of the North American Free Trade Agreement (NAFTA) arbitration panel.

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Bernard Reculeau. Corporate Director. Mr. Bernard Reculeau brings over 25 years of pharmaceutical industry experience to Theratechnologies. From September 2006 to December 2009, he was the President of CIS Bio International, a French company specializing in nuclear medicine and biomedical technologies. Prior to joining CIS Bio International, Mr. Reculeau was Senior Vice President Pharmaceutical Operations of Sanofi for the InterContinental Region. In his previous functions, he was responsible for product development and commercialization in numerous countries around the world. Mr. Reculeau has close to 25 years in pharmaceutical operations, notably in France where he ran the pharmaceutical operations for Rhône-Poulenc and Rhône-Poulenc Rorer as well as in other countries in the European Union. Mr. Reculeau retired in early 2010.
Jean-Denis Talon. Chairman of the Board, AXA Canada. Mr. Jean-Denis Talon had a successful career with AXA Insurance over a period of more than 20 years, ultimately becoming President and Chief Executive Officer. He is currently Chairman of the Board of AXA Canada. Mr. Talon is also former President of the Financial Affairs Committee at the Insurance Bureau of Canada.
Luc Tanguay, M.Sc., CFA. Senior Executive Vice President and Chief Financial Officer of the Company. Mr. Luc Tanguay has been active in the biotechnology industry for over 15 years. As a member of our senior management since 1996, he has contributed to our growth by facilitating access to public and private capital funding. A member of the board of directors since 1993, he has held various management positions since joining the Company. Prior to joining us, Mr. Tanguay had a career in investment banking at National Bank Financial Inc.
4.2 AUDIT COMMITTEE
Our board of directors has established an Audit Committee to review our annual financial statements prior to their approval by the board of directors and also to perform other duties, as is described in the Audit Committee’s charter adopted by the board of directors and attached hereto as Appendix A.
As of November 30, 2010, the Audit Committee was composed of three members: Paul Pommier, its Chair, Jean-Denis Talon and Gérald A. Lacoste. All three are independent and financially literate. The details mentioned hereunder describe the education and experience of the Audit Committee members that is relevant to the performance of their responsibilities, in particular any experience in preparing, auditing, analyzing and evaluating financial statements.
Paul Pommier. Mr. Pommier holds an MBA degree and has more than 25 years of experience in the financial field, notably in public and private company financings, as well as in merger and acquisition activities. While acting as a director of Royal Aviation Inc., he was also a member of its audit committee.
Jean-Denis Talon. Mr. Talon has more than 20 years of experience in the insurance field as a senior officer. Mr. Talon acted as a member of the audit committee of AXA Canada from March 1995 to April 2008. He has been a member of the audit committee of InnovAssur since March 1999 and since November 1999, he has been acting as Chairman of its audit committee.
Gérald A. Lacoste. Mr. Lacoste has more than 30 years of experience in the fields of securities regulation, corporate finance and corporate governance. Mr. Lacoste was president of the audit committee of Amisco Ltd. from 2002 to 2009 and was also a member of the audit committee of Andromed Inc. from 2004 to 2007. Mr. Lacoste has been a member of the audit committee of Génome Québec from 2006 to 2009.
Each member of the Audit Committee has acquired in-depth financial expertise giving each the ability to read and understand a set of financial statements which presents the breadth and level of

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complexity of accounting issues that are generally comparable to those that can reasonably be expected to be raised in the issuer’s financial statements.
External Auditors Service Fees
                 
    Financial Year Ended   Financial Year Ended
    November 30, 2010   November 30, 2009
Audit Fees
  $ 122,000     $ 80,000  
Audit-Related Fees (1)
  $ 158,025     $ 17,500  
Tax Fees (2)
  $ 56,600     $ 39,626  
All Other Fees
           
 
(1)   Audit-related fees relate principally to services rendered in connection with our annual financial statements and, for the financial year ended November 30, 2010, audit fees paid to KPMG also included fees related to services rendered in connection with the audit of IFRS adjustments and the translation of the financial statements to IFRS standards.
 
(2)   Tax fees relate to services rendered in connection with the preparation of corporate tax returns and general tax advice.
4.3 EXECUTIVE OFFICERS
The following table lists the names of all executive officers, their province or state and country of residence, their office and the number of common shares and deferred share units beneficially owned, directly or indirectly, by each of them or over which they exercised control or direction as at February 21, 2011.

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EXECUTIVE OFFICERS
                     
        Number of    
        Common Shares    
        of the Company    
        over which    
        Control or   Number of
Name and Place of       Direction is   Deferred
Residence   Office   Exercised   Share Units
Paul Pommier
Québec, Canada
 
Chairman of the Board
    190,100       20,998  
 
John-Michel T. Huss
Québec, Canada
 
President and Chief Executive Officer
          44,248  
 
Luc Tanguay
Québec, Canada
 
Senior Executive Vice President and Chief Financial Officer
    83,000       27,572  
 
Marie-Noël Colussi
Québec, Canada
 
Vice President, Finance
    10,075       3,182  
 
Chantal Desrochers
Québec, Canada
 
Vice President, Business Development and Commercialization
    16,300        
 
Andrea Gilpin
Québec, Canada
 
Vice President, Investor Relations and Communications
    6,000       2,005  
 
Jocelyn Lafond
Québec, Canada
 
Vice President, Legal Affairs, and Corporate Secretary
          5,000  
 
Christian Marsolais
Québec, Canada
 
Vice President, Clinical Research and Medical Affairs
    8,597       6,312  
 
Martine Ortega
Québec, Canada
 
Vice President, Compliance and Regulatory Affairs
    3,000       7,532  
 
Pierre Perazzelli
Québec, Canada
 
Vice President, Pharmaceutical Development
    1,800       4,061  
 
Krishna Peri
Québec, Canada
 
Vice President, Research
    35,000        
Biographical Notes of the Executive Officers
For the biographical notes of Paul Pommier, John-Michel T. Huss and Luc Tanguay, please refer to ITEM 4 of this AIF.
Marie-Noël Colussi, CA. Vice President, Finance. Ms. Marie-Noël Colussi is a graduate of Université du Québec à Montréal in business administration. Prior to joining us, Ms. Colussi worked for eight years with KPMG, a major accounting firm. Ms. Colussi has experience in accounting, auditing, control and taxation, particularly in research and development. She joined us in March 1997, and prior to her appointment as Vice President, Finance in February 2002, she held the positions of Director, Accounting and Internal Control and Controller.
Chantal Desrochers, B.Ph., MBA. Vice President, Business Development and Commercialization. Ms. Chantal Desrochers obtained her degrees in pharmacy and business from the Université de Montréal. She began her career at Schering-Plough in sales and ultimately became a Product Director. After obtaining her M.B.A., Ms. Desrochers joined Bristol-Myers Squibb Company in Canada as Marketing Director, Pharmaceuticals and became Vice President, Institutional Business in 1995. In 1997, Ms. Desrochers was promoted to European Franchise Marketing Director, Cardiovascular, in

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France where she contributed to the commercial development of cardiovascular products. This led to her appointment as International Marketing Director, Cardiovascular, at Bristol-Myers Squibb in Princeton, New Jersey. Prior to joining us in 2005, Ms. Desrochers offered consulting services in business development and product development strategies.
Andrea Gilpin, Ph.D., MBA. Vice President, Investor Relations and Communications. Prior to joining us in 2007, Dr. Gilpin was Director, Investor Relations at MethylGene Inc. and held various positions at biotechnology companies. Dr Gilpin has a Ph.D. (Genetics/Biochemistry) from the University of Toronto and an MBA from the Asper School of Business.
Jocelyn Lafond, LL.B., LL.M. Vice President, Legal Affairs, and Corporate Secretary. Mr. Lafond has over 15 years of experience in the fields of corporate and securities law. Mr. Lafond holds a law degree from Université Laval and a Masters Degree in Law from the University of Toronto. He has been a member of the Barreau du Québec since 1992. Prior to joining us in 2007, Mr. Lafond was a partner with the international law firm of Fasken Martineau DuMoulin LLP.
Christian Marsolais, Ph.D. Vice President, Clinical Research and Medical Affairs. Dr. Christian Marsolais has over 15 years of experience in clinical research for large pharmaceutical companies, such as Sandoz Canada Inc. and BioChem Therapeutics Inc. Before joining us in 2007, Dr. Marsolais held various positions at Pfizer Global Pharmaceuticals, where he was appointed Director of Medical Affairs, Therapeutic Areas, in 2004. In this position, Dr. Marsolais was responsible for the clinical program and scientific initiatives development, as well as the integration of the Scientific Affairs and Clinical Research for the oncology and HIV Franchise. Dr. Marsolais holds a Ph.D. in Biochemistry from the Université de Montréal.
Martine Ortega, Pharm. D. Vice President, Compliance and Regulatory Affairs. Ms. Martine Ortega joined us in 2006. A graduate in pharmacy from the Université d’Aix-Marseille II, she holds a postdoctoral degree in dermatology. Ms. Ortega has close to 20 years of experience in the pharmaceutical industry, where she has gained knowledge of the drug development process. During her career, she has acquired broad expertise in GLP, GCP and GMP practices and procedures as well as in computerized systems validation. She is also experienced in relations with US, European and Canadian regulatory agencies. Prior to joining us, she held senior management positions at Ventana Clinical Research Corporation, MDS Pharma Services and Sandoz Canada Inc.
Pierre Perazzelli, B. Sc. Vice President, Pharmaceutical Development. A graduate of Université Laval, Mr. Perazzelli has been working in the pharmaceutical manufacturing industry for over 20 years. Throughout his career, he has held various positions in large pharmaceutical companies, including Bristol Myers Squibb and Abbott Laboratories, Ltd. He was Director of the LAB Laboratory, a research centre specializing in pharmaceutical formulation. He is also experienced in the production of generic drugs. Mr. Perazzelli joined us in May 2000.
Krishna Peri, Ph.D. Vice President, Research. Co-inventor of the ExoPep™ technology and a founder of Pharma-G, Dr. Krishna Peri holds a Ph.D. in biochemistry from the University of Saskatchewan, Canada. He pursued post-doctoral research in cancer as an NCI fellow at McGill University and at Ste. Justine Hospital Research Center. After our acquisition of Pharma-G in 2000, he served as director of discovery research, and was subsequently appointed Vice-President, Research, in June 2004.

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4.4 DECLARATION OF THE DIRECTORS’ AND OFFICERS’ ANTECEDENTS
Except as described below, to our knowledge, no director or executive officer (a) is, as at the date of this Annual Information Form, or has been within the ten years before the date of this Annual Information Form, a director or executive officer of any company (including us) that, while that person was acting in that capacity, (i) was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than thirty consecutive days; (ii) was subject to an event that resulted, after the director or executive officer ceased to be a director or executive officer, in the company being the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than thirty consecutive days; or (iii) within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (b) has, within the ten years before the date of this Annual Information Form, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold his assets.
Paul Pommier was a member of the board of directors of Royal Aviation Inc. from September 1996 until it was acquired by Canada 3000 Inc. in March 2001. Subsequently, at the end of 2001, Canada 3000 Inc. and its subsidiaries, including Royal Aviation Inc., made assignments in bankruptcy under Item 49 of the Bankruptcy and Insolvency Act (R.S. 1985, c. B-3), or Bankruptcy Act.
Jean-Denis Talon was a member of the board of directors of Toptent Inc., or Toptent, from August 1, 2007 to November 26, 2009. On December 3, 2009, Toptent filed a notice of intention to make a proposal under the Bankruptcy Act. Subsequently, on May 7, 2010, Toptent filed a proposal under the Bankruptcy Act. The proposal was accepted by Toptent’s creditors on May 20, 2010.
Luc Tanguay was a member of the board of directors of Ambrilia Biopharma Inc., or Ambrilia, from August 22, 2006 to March 30, 2010. On July 31, 2009, Ambrilia obtained court protection from its creditors under the Companies’ Creditors Arrangement Act (Canada). The purpose of the order issued by the court granting Ambrilia protection from its creditors was to provide Ambrilia and its subsidiaries the opportunity to restructure its affairs. On July 31, 2009, the TSX halted the trading of Ambrilia’s shares pending its review of Ambrilia’s meeting the requirements for continuous listing. On January 31, 2011, TSX determined to delist the common shares of Ambrilia at the close of market on March 4, 2011 for failure to meet the continued listing requirements of TSX. The common shares will remain suspended from trading.
4.5 SECURITIES HELD BY THE DIRECTORS AND EXECUTIVE OFFICERS
As at February 21, 2011, the total number of common shares (the only securities carrying a voting right) held by our directors and executive officers amounted to 723,972, which represented 1.20% of our outstanding common shares.

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ITEM 5 INTERESTS OF EXPERTS
KPMG LLP, our auditors, is the only person or company who is named as having prepared or certified a statement, report or evaluation, included or mentioned in a filing under securities regulations during our most recently completed financial year.
KPMG LLP and its partners are independent in accordance with the auditor’s rules of professional conduct in the jurisdiction of Québec.

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ITEM 6 SECURITIES OF THE COMPANY
6.1 AUTHORIZED SHARE CAPITAL
We are authorized to issue an unlimited number of common shares and an unlimited number of preferred shares issuable in 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.
6.2 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. In addition, the terms of any future debt or credit facility may preclude us from paying dividends.
6.3 TRANSFER AGENT AND REGISTRAR
     Our transfer agent and registrar is Computershare Trust Company of Canada which holds, at its Montreal office, the registers related to our common shares, shareholders and transfers.

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ITEM 7 MARKET FOR SECURITIES
7.1 TRADING PRICE AND VOLUME
The following table sets forth the high and low closing sale prices for our common shares for the periods indicated, as reported on the TSX. However, you should not view this presentation as an indication that the market price of our common shares will continue at such levels.
                         
  Price  
Period   $ High   $ Low   Volume
February 1 to February 18, 2011
  $ 5.88     $ 5.01       4,371,300  
January 2011
  $ 5.90     $ 5.43       3,319,500  
December 2010
  $ 5.69     $ 5.27       4,038,000  
November 2010
  $ 5.80     $ 4.91       8,127,400  
October 2010
  $ 5.15     $ 4.44       2,944,000  
September 2010
  $ 4.98     $ 4.78       1,230,300  
August 2010
  $ 5.08     $ 4.75       1,934,900  
July 2010
  $ 5.48     $ 4.82       3,795,500  
June 2010
  $ 5.59     $ 4.61       6,188,600  
May 2010
  $ 5.02     $ 2.09       11,593,700  
April 2010
  $ 5.20     $ 4.82       1,960,000  
March 2010
  $ 5.50     $ 4.80       2,612,100  
February 2010
  $ 5.03     $ 4.67       2,205,500  
January 2010
  $ 5.42     $ 4.28       4,505,000  
December 2009
  $ 4.45     $ 3.55       5,517,800  
7.2 PRIOR SALES
The following table summarizes the distribution of securities other than our common shares that we issued during the most recently completed financial year, identifying the type of security, the price per security, the number of securities issued, and the date on which the securities were issued.
                         
Date   Type of Security   Price per Security   Number of Securities
December 8, 2009
  Options   $ 3.84       265,000  
June 8, 2010
  Options   $ 4.75       70,000  

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ITEM 8 LEGAL PROCEEDINGS
On July 26, 2010, we received a motion for authorization to institute a class action lawsuit against us, our chairman and our former chief executive officer. This motion was filed in the Superior Court of Québec, district of Montreal. The applicant is seeking to initiate a class action suit and to certify and represent a class of persons who were shareholders at May 21, 2010 and who sold their common shares on May 25 or 26, 2010. This applicant alleges that we did not comply with our continuous disclosure obligations as a reporting issuer by failing to disclose certain alleged adverse effects relating to the administration of EGRIFTA®. We are of the view that the allegations contained in the motion are entirely without merit and intend to take all appropriate actions to vigorously defend our position. The Motion has not yet been heard by the Superior Court of Québec and no date has been set for the hearing. We have subscribed for insurance covering our potential liability and the potential liability of our directors and officers in the performance of all their duties for us subject to a $200,000 deductible and standard terms, conditions and exclusions.
We are not otherwise currently subject to any material legal proceedings.

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ITEM 9 MATERIAL CONTRACTS
Licensing Agreements. We have executed commercialization agreements with third parties for the exclusive distribution rights to EGRIFTA® for the reduction of excess abdominal fact in HIV-infected patients with lipodystrophy for (i) the United States; (ii) Latin America, Africa and the Middle East; and (iii) Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries. For a description of these agreements, see Item 2.5.
Supply Agreements. We have executed five supply agreements with Bachem, Draxis, Becton Dickinson, Hospira and ABAR. For a description of these agreements, see Item 2.7.
Shareholder Rights Plan Agreement. On February 10, 2010, we entered into a shareholder rights plan agreement, or Rights Plan. The Rights Plan entitles a holder of rights (other than the Acquiring Person, as defined below, or any affiliate or associate of an Acquiring Person or any person acting jointly or in concert with an Acquiring Person or any affiliate or associate of an Acquiring Person) to purchase to our common shares at a discount of 50% to the market price upon a person becoming an “Acquiring Person”, subject to certain exceptions and the terms and conditions set out in the Rights Plan. An “Acquiring Person” is defined in the Rights Plan as a beneficial owner of 20% or more of our common shares. The Rights Plan will expire at the close of our annual meeting of shareholders in 2013.
In order to implement the Rights Plan, we issued one right in respect of each common share outstanding as of 6:00 p.m. (Montreal time) on February 9, 2010, the “Effective Date”. One right will also be issued and attached to each subsequently issued common share. The rights will separate and trade separately from the common shares to which they are attached and will become exercisable after the “Separation Time”, as defined below:
The “Separation time” is the close of business on the tenth business day following the earliest of:
  (a)   the date of the first public announcement made by us or an Acquiring Person that a person has become an Acquiring Person;
 
  (b)   the date of the commencement of, or first public announcement of the intent of any Person to commence, a take-over bid (other than a Permitted Bid (as defined in the Rights Plan) or a Competing Permitted Bid (as defined in the Rights Plan)) by any person for our common shares;
 
  (c)   the date upon which a Permitted Bid or Competing Permitted Bid ceases to be such; or
 
  (d)   such later date as may be determined by the board of directors.
After the time at which a person becomes an Acquiring Person, and subject to the terms and conditions set out in the shareholder rights plan agreement, each right would, upon exercise, entitle a rights holder, other than the Acquiring Person and related persons, to purchase common shares at a 50% discount to the market price at the time.
Under the Rights Plan, a “Permitted Bid” is a bid made to all holders of the common shares and which is open for acceptance for not less than 60 days. If at the end of 60 days at least 50% of the outstanding common shares, other than those owned by the offeror and certain related parties, have been tendered, the offeror may take up and pay for the common shares but must extend the bid for a further 10 days to allow other shareholders to tender.

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Lease Agreement. In October 2009, we entered into a new lease agreement with Société de portefeuille immobilier GE Q-Tech inc. for the renewal of our lease for our offices and laboratories located in Montréal, Québec. The new lease became effective on May 1, 2010 and will expire on April 30, 2021. Under the terms of this new lease agreement, we have two five year renewal options. If exercised, the first renewal option will start on May 1, 2021 and expire on April 30, 2026 and the second renewal option, if exercised, will start on May 1, 2026 and expire on April 30, 2031.

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ITEM 10 ADDITIONAL INFORMATION
Additional information with respect to our company, including directors’ and officers’ compensation, principal holders of our securities and securities authorized for issuance under equity compensation plans, where applicable, is contained in our Management Proxy Circular for our most recent annual and special meeting of shareholders. Our financial information is provided in our comparative financial statements and Management Discussion & Analysis for our financial year ended November 30, 2010.
Additional information regarding our company is available on SEDAR at www.sedar.com or upon request addressed to Jocelyn Lafond, Corporate Secretary, at 2310 Alfred Nobel Boulevard, Montreal, Québec, Canada H4S 2B4. Except when our securities are in the process of distribution pursuant to a prospectus, we may charge reasonable fees if the request is from a person who does not hold any of our securities.

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APPENDIX A — AUDIT COMMITTEE CHARTER
I.   Mandate
 
    The Audit Committee (the “Committee”) is responsible for assisting the Company’s Board of Directors (the “Board”) in overseeing the following:
  A.   the integrity of the Company’s financial statements and related information;
 
  B.   the internal control systems of the Company;
 
  C.   the appointment and performance of the external auditor; and
 
  D.   the supervision of the Company’s Risk Management.
II.   Obligations and Duties
 
    The Committee carries out the duties usually entrusted to an audit committee and any other duty assigned from time to time by the Board. Management has the responsibility to ensure the integrity of the financial information and the effectiveness of the Company’s internal controls. The external auditor has the responsibility to verify and certify the accurate presentation of the Company’s financial statements; at the same time evaluating the internal control process to determine the nature, extent and chronology of the auditing procedures used. The Committee has the responsibility to supervise the participants involved in the preparation process of the financial information and to report on this to the Board.
 
    Specifically, the Committee is charged with the following obligations and duties:
  A.   Integrity of the Company’s Financial Statements and Related Information
  1.   Review annual and quarterly consolidated financial statements and all financial information legally required to be disclosed by the Company, i.e. financial information contained in the “Management Discussion and Analysis” report, the annual information form and the press releases, as the case may be, discuss such with management and the external auditor, and suggest recommendations to the Board, as the case may be.
 
  2.   Approve the interim Financial Statements, the interim “Management Discussion and Analysis” reports and all supplements to these “Management Discussion and Analysis” reports which have to be filed with regulatory authorities.
 
  3.   On a periodic basis, review and discuss with management and the external auditor the following:
  a.   major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and major issues as to the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies;
 
  b.   the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company; and
 
  c.   the type and presentation of information to be included in press releases dealing with financial results (paying particular attention to any use of pro-forma information or information adjusted by means of non-generally accepted accounting principles).

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  4.   Review and discuss reports from the external auditor on:
  a.   all critical accounting policies and practices used by the Company; and
 
  b.   all material alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, including the ramifications of the use of such alternate treatments and disclosures and the treatment preferred by the external auditor.
  B.   Supervision of the Company’s Internal Control Systems
  1.   Review and discuss with management and with the external auditor present reports and, when appropriate, provide recommendations to the Board on the following:
  a.   actual financial data compared with budgeted data;
 
  b.   the Company’s internal control system;
 
  c.   the relationship of the Committee with the management and audit committees of the Company’s consolidated subsidiaries. With respect to the subsidiaries, the Committee must:
    obtain precisions as to the mandate of the audit committees;
 
    enquire about internal controls and study related risks;
 
    obtain the external auditors’ report to the audit committees on the planning of external auditing;
 
    obtain the external auditors’ report to the audit committees on the auditing results;
 
    obtain copy of the minutes of the audit committees’ meetings; and
 
    ensure that the critical accounting policies and practices are identical to the Company’s.
  2.   Study the feasibility of implementing an internal auditing system and when implemented, establish its responsibilities and supervise its work.
 
  3.   Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
  C.   Appointment and Performance Supervision of the External Auditor
  1.   Provide recommendations to the Board on the selection of the external auditor to be appointed by the shareholders.
 
  2.   Approve in advance and recommend to the Board the external auditor’s remuneration and more specifically fees and terms of all audit, review or certification services to be provided by the external auditor to the Company and any consolidated subsidiary.
 
  3.   Supervise the performance of the external auditor in charge of preparing or issuing an audit report or performing other audit services or certification services for the Company or any consolidated subsidiary of the Company,

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      where required, and review all related questions as to the terms of its mission and the revision of its mission.
  4.   Pre-approve all engagements for permitted non-audit services provided by the external auditor to the Company and any consolidated subsidiary, and to this effect and at its convenience, establish policies and procedures for the engagement of the external auditor to provide to the Company and any consolidated subsidiary permitted non-audit services, which shall include approval in advance by the Committee of all audit/review services and permitted non-audit services to be provided to the Company and any consolidated subsidiary by the external auditor.
 
  5.   At least annually, consider, assess and report to the Board on:
  a.   the independence of the external auditor, including whether the external auditor’s performance of permitted non-audit services is compatible with the external auditor’s independence;
 
  b.   the obtaining from the external auditor of a written statement i) describing all relationships between the external auditor and the Company; ii) assuring that lead audit partner rotation is carried out, as required by law; and iii) describing any other relationship that may adversely affect the independence of the external auditor; and
 
  c.   the evaluation of the lead audit partner, taking into account the opinions of management and the internal auditor.
  6.   At least annually, obtain and review a report by the external auditor describing:
  a.   the external auditor’s internal quality-control procedures; and
 
  b.   any material issues raised by the most recent internal quality-control review (or peer review) of the external auditor’s firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, with respect to one or more independent audits carried out by the external auditor’s firm, and any steps taken to deal with any such issues.
  7.   Resolve any disagreement between management and the external auditor regarding financial reporting.
 
  8.   Review the audit process with the external auditor.
 
  9.   Review and discuss with the Chief Executive Officer and Chief Financial Officer of the Company the process for the certifications to be provided in the Company’s public disclosure documents.
 
  10.   Meet periodically with the external auditor in the absence of management.
 
  11.   Establish procedures with respect to hiring the external auditor’s employees and former employees.
  D.   Supervision of the Company’s Risk Management
 
      Review, report and, where appropriate, provide recommendations to the Board on the following:
  1.   the Company’s processes for identifying, assessing and managing risk;
 
  2.   the Company’s major financial risk exposures and the steps the Company has taken to monitor and control such exposures;

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  3.   the Company’s insurance portfolio and the adequacy of the coverage; and
 
  4.   the Company’s investment policy.
III.   External Advisors
 
    In discharging its duties and responsibilities, the Committee is empowered to retain external legal counsel or other external advisors, as appropriate. The Company shall provide the necessary funds to secure the services of such advisors.
 
IV.   Composition of the Committee
 
    The Committee is composed of any number of Directors, but no less than three, as may be determined by the Board from time to time by resolution. Each member of the Committee shall be independent from the Company and is financially literate, as determined by the Board and in conformity with applicable laws, rules and regulations.
 
V.   Term of the Mandate
 
    Committee members are appointed by Board resolution to carry out their mandate extending from the date of the appointment to the next annual general meeting of the shareholders or until their successors are so appointed.
 
VI.   Vacancy
 
    The Board may fill vacancies at any time by resolution. Subject to the constitution of the quorum, the Committee’s members can continue to act even if there is one or many vacancies on the Committee.
 
VII.   Chairman
 
    The Board appoints the Committee Chairman who will call and chair the meetings. The Chairman reports to the Board the deliberations of the Committee and its recommendations.
 
VIII.   Secretary
 
    Unless otherwise determined by resolution of the Board, the Secretary of the Company shall act as Committee Secretary. The Secretary must attend Committee meetings and prepare the minutes. He/she must provide notification of meetings as directed by the Committee Chairman. The Secretary is the guardian of the Committee’s records, books and archives.
 
IX.   Meeting Proceedings
 
    The Committee establishes its own procedures as to how meetings are called and conducted. Unless it is otherwise decided, the Committee shall meet privately and independently from Management at each regularly scheduled meeting. In the absence of the regularly appointed Chairman, the meeting shall be chaired by another Committee member selected among attending participants and appointed accordingly. In the absence of the regularly appointed Secretary, Committee members shall designate someone to carry out this duty.
 
    The Committee shall meet at least four times a year with management and the external auditor, and at least once a year, separately in executive session in the absence of management and the external auditor. At least once a year, the Committee invites the Chief

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    Financial Officer of each subsidiary to present the financial information and internal control systems related to such subsidiary.
X.   Quorum and Voting
 
    Unless the Board otherwise specifies by resolution, two Committee members shall constitute an appropriate quorum for deliberation of items on the agenda. During meetings, decisions are reached by a majority of votes from Committee members, unless the quorum is of two members, in which case decisions are made by consensus of opinion.
 
XI.   Records
 
    The Committee keeps records that are deemed necessary of its deliberations and reports regularly to the Board on its activities and recommendations.
 
XII.   Effective Date
 
    This charter was adopted by the Directors at its May 3, 2004 Board meeting. It was amended by the Directors during the April 13, 2005 and February 8, 2006 Board meetings.

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ex-99.2
Exhibit 99.2
(THERA LOGO)
Forward-Looking Information
This Management’s discussion and analysis (“MD&A”) contains certain statements that are considered “forward-looking information” within the meaning of applicable securities legislation. This forward-looking information includes, but is not limited to, information regarding the preparation and filing of applications seeking regulatory approval of EGRIFTATM in the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy in various territories outside of the United States, the revenue to be generated as a result of sales of EGRIFTATM to EMD Serono, Inc., (“EMD Serono”), the receipt of royalties from EMD Serono in connection with the sale of EGRIFTATM in the United States, and the development of tesamorelin in a new clinical program for a new indication. Furthermore, the words “will”, “may”, “could”, “should”, “outlook”, “believe”, “plan”, “envisage”, “anticipate”, “expect” and “estimate”, or the negatives of these terms or variations of them and the use of future or conditional tenses as well as similar expressions denote forward-looking information.
Forward-looking information is based upon a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Company’s control, that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties are described under the section “Risks and Uncertainties” on page 21 and include, but are not limited to, the risk that EGRIFTATM is not approved in all or some of the territories referred to in this MD&A, the revenue and royalties we expect to generate from sales of EGRIFTATM is lower than anticipated, the supply of EGRIFTATM to our commercial partners is delayed or suspended as a result of problems with our suppliers, EGRIFTATM is withdrawn from the market as a result of defects or recalls, our intellectual property is not adequately protected and our liquidity level decreases based on unexpected activities that must be carried out in order to achieve our business plan.
Although the forward-looking information contained in this MD&A is based upon what we believe are reasonable assumptions, investors are cautioned against placing undue reliance on this information since actual results may vary materially from the forward-looking information contained in this MD&A. Certain assumptions made in preparing the forward-looking information include the assumption that tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy will receive approval in the territories referred to in this MD&A, no additional clinical studies will be required to obtain said regulatory approval of tesamorelin, EGRIFTATM will be accepted by the marketplace in the United States and will be on the list of reimbursed drugs by third-party payers, our relations with third-party suppliers of EGRIFTATM will be conflict-free and that such third-party suppliers will have enough capacity to manufacture and supply EGRIFTATM to meet its demand and on a timely-basis and that our business plan will not be substantially modified.
Consequently, all of the forward-looking information contained in this MD&A is qualified by the foregoing cautionary statements, and there can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business, financial condition or results of operation.

 


 

Management’s Discussion and Analysis
The following discussion and analysis provides management’s point of view on the financial position and the results of operations of Theratechnologies Inc., on a consolidated basis for the twelve-month periods ended November 30, 2010 (“fiscal 2010”) and November 30, 2009 (“fiscal 2009”). Unless otherwise indicated or unless the context requires otherwise, all references in this MD&A to “Theratechnologies”, “the Company”, “we”, “us”, “our” or similar terms refer to Theratechnologies Inc. and its consolidated subsidiaries. This information is dated February 8, 2011, and should be read in conjunction with the Audited Consolidated Financial Statements and the accompanying notes. Unless specified otherwise, all amounts are in Canadian dollars. In this MD&A, the use of “EGRIFTATM” refers to tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy regardless of the trade name used for such product in any particular territory. EGRIFTATM is the trade name used in the United States for tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
Except as otherwise indicated, the financial information contained in this MD&A and in our Audited Consolidated Financial Statements has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Our financial statements were previously prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”). For more information regarding the conversion to IFRS, please refer to the heading “Conversion to IFRS” in this MD&A and to note 27 of the Audited Consolidated Financial Statements, which are our first consolidated financial statements prepared in accordance with IFRS.
The Audited Consolidated Financial Statements and MD&A have been reviewed by our Audit Committee and approved by our Board of Directors.
Overview
We are a specialty pharmaceutical company that discovers and develops innovative therapeutic peptide products with an emphasis on growth-hormone releasing factor peptides. We are leveraging our expertise in the field of metabolism to discover and develop products in specialty markets. Our commercialization strategy is to retain all or a significant portion of the commercial rights to our products. Our first product, EGRIFTA™ (tesamorelin for injection), was approved by the United States Food and Drug Administration (“FDA”) in November 2010. To date, EGRIFTA™ is the only approved therapy for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
Lipodystrophy in HIV-infected patients presents a serious medical condition, affecting approximately 29% of all diagnosed and treated HIV-infected patients. This condition is associated with a range of physiological and psychological complications beyond the significant health and mortality risks of the HIV infection itself. EGRIFTA™ is currently marketed in the United States by EMD Serono, Inc. (“EMD Serono”), an affiliate of Merck KGaA, pursuant to a collaboration and licensing agreement entered into by us and EMD Serono in October 2008. In addition, we have signed distribution and licensing agreements with Sanofi Winthrop Industries, an affiliate of Sanofi-aventis (collectively, “Sanofi”), for the commercialization rights for EGRIFTA™ for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in Latin America, Africa and the Middle East and with Ferrer Internacional S.A. (“Ferrer”) for the commercialization rights for EGRIFTA™ for the reduction of excess abdominal fat in HIV-

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infected patients with lipodystrophy in Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries. EGRIFTA™ is the trade name used in the United States for tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
The first six months of fiscal 2010 were devoted to preparing for a public meeting with the Endocrinologic and Metabolic Drugs Advisory Committee, which the FDA of the United States had asked us to attend in the context of its review of our New Drug Application (“NDA”) for EGRIFTA™. As an integral part of the FDA review process for a NDA, the principal role of an advisory committee is to provide an independent point of view to enhance the quality of the agency’s regulatory decision-making process. At the public meeting held on May 27, 2010, the committee of experts unanimously recommended to the FDA, the approval of EGRIFTA™.
In the second half of fiscal 2010, we focused primarily on responding to the FDA’s questions and began building our inventory in anticipation of the launch of EGRIFTA™ in the United States. We were also focused on securing strategic alliances for the commercialization of EGRIFTA™ in territories outside of the United States.
On November 10, 2010, the FDA approved EGRIFTA™ as the first approved treatment in the United States for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy. By virtue of the collaboration and licensing agreement entered into in 2008 with EMD Serono, we received a milestone payment of US$25,000,000 associated with the FDA-approval of EGRIFTA™. This payment was received by us on November 30, 2010. Under the collaboration and licensing agreement, EMD Serono has the exclusive right to commercialize EGRIFTATM in the United States for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
Concurrent with these regulatory activities in fiscal 2010, our third-party suppliers began manufacturing inventory of EGRIFTA™ in preparation for the launch of EGRIFTA™ in the United States by our commercial partner, EMD Serono. The first product shipment of EGRIFTA™ took place in December 2010.
Fiscal 2010 was also marked by a change in our management. On December 1, 2010, John-Michel T. Huss, previously Chief of Staff, Office of the CEO, of Sanofi in Paris, became our President and Chief Executive Officer. Mr. Huss replaced Yves Rosconi who, in June 2010, announced his desire to retire after six years as the head of the Company.
On December 6, 2010, we entered into a distribution and licensing agreement with Sanofi granting them the exclusive commercialization rights of EGRIFTATM for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy in Latin America, Africa and the Middle East.
On February 3, 2011, we entered into a distribution and license agreement with Ferrer granting them the exclusive commercialization rights of tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy in Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries.
Financial Position
We completed fiscal 2010 with a liquidity position of $64,882,000, consisting of $64,550,000 of cash and highly liquid bonds, and $332,000 of tax credits and grants receivable.

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Economic Environment
In 2008 and 2009, capital markets were characterized by significant stock market volatility and a notable decline in access to capital, particularly for the biotechnology industry. An economic slowdown occurred in almost all sectors and the general decline of the capital markets had a negative effect on the cost of capital for companies.
In early 2010, the situation remained challenging and it was only in the second half of the year that we began to see an improvement in economic conditions, which resulted in better access to capital and lower credit risk. Interest rates, however, remained extremely low throughout the year.
Despite the improvement in general market conditions, our investment policy continues to be conservative. We have invested our funds in highly liquid, low-risk instruments as described under the heading “Liquidity and capital resources”.
Perspectives for 2011
In 2011, our focus is to maximize the global opportunities for EGRIFTATM and tesamorelin. In order to do so we intend to:
    Support our commercial partner, EMD Serono, in commercializing EGRIFTATM in the United States;
 
    Support our commercial partner, Sanofi, in seeking regulatory approval of EGRIFTATM in Latin America, Africa and the Middle-East for potential commercialization;
 
    Support our commercial partner, Ferrer, in seeking regulatory approval of EGRIFTATM in Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries for potential commercialization;
 
    Assess expansion opportunities into other territories where EGRIFTATM could be used for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy;
 
    Initiate a new clinical program evaluating tesamorelin in a new indication;
 
    Continue working on EGRIFTATM. We have developed a new presentation of EGRIFTATM which is easier to use than its current presentation. This new presentation complies with one of the FDA’s post-approval requirements. See “Post-Approval Commitments”; and
 
    Develop a new formulation for EGRIFTATM pursuant to our agreement with EMD Serono.

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Selected Annual Information
                         
Consolidated statement of comprehensive income                  
YEARS ENDED NOVEMBER 30 (in thousands of                  
Canadian dollars, except per share amounts)   2010     2009     2008(1)  
 
Revenue(2)
  $ 31,868     $ 17,468     $ 2,641  
Research and development expenses, net of tax credits
  $ 14,064     $ 20,810     $ 33,215  
Results from operating activities
  $ 6,663     $ (16,747 )   $ (48,611 )
Net financial income
  $ 2,381     $ 1,591        
Net profit (loss)
  $ 8,930     $ (15,156 )   $ (48,611 )
 
Basic and diluted earnings (loss) per share
  $ 0.15     $ (0.25 )   $ (0.85 )
 
                         
Consolidated statement of financial position                  
AT NOVEMBER 30 (in thousands of Canadian                  
dollars)   2010     2009     2008(1)  
 
Liquidities (cash and bonds)
  $ 64,550     $ 63,362     $ 46,337  
Tax credits and grants receivable
  $ 332     $ 1,333     $ 1,784  
Total assets
  $ 71,651     $ 69,154     $ 53,545  
Total share capital
  $ 279,398     $ 279,169     $ 269,219  
Total equity
  $ 52,656     $ 43,048     $ 46,347  
 
 
(1)   We adopted IFRS in fiscal 2010 with a transition date of December 1, 2008. Consequently, the selected financial information for the year ended November 30, 2008, as presented in our 2009 Audited Consolidated Financial Statements, which were presented in conformity with Canadian GAAP, was not restated in terms of IFRS and accordingly, is not comparable with the information for fiscal 2010 and 2009. See “Conversion to IFRS” for the policy differences between Canadian GAAP and IFRS.
 
(2)   Revenue in 2008 includes interest income of $2,427,000. Revenue in 2009 includes a milestone payment of $10,884,000 received from EMD Serono following the FDA’s acceptance to file our NDA for EGRIFTATM. Revenue in 2010 includes a milestone payment of $25,000,000 received from EMD Serono following marketing approval of EGRIFTATM by the FDA.

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Operating Results
Revenue
Our consolidated revenue for the year ended November 30, 2010 was $31,868,000, compared to $17,468,000 in 2009. The increased revenue in fiscal 2010 was related to the milestone payment of US$25,000,000 (C$25,000,000) received by us from EMD Serono on November 30, 2010 associated with the satisfaction of the condition of approval of EGRIFTATM by the FDA. In fiscal 2009, a payment of US$10,000,000 (C$10,884,000) was received by us from EMD Serono following the acceptance by the FDA of the Company’s NDA for EGRIFTATM in conformity with the collaboration and licensing agreement with EMD Serono.
The initial payment of US$22,000,000 (C$27,097,000) received on December 15, 2008, upon the closing of the transaction with EMD Serono, has been deferred and is being amortized over its estimated service period of four years on a straight-line basis. For the year ended November 30, 2010, an amount of $6,846,000 related to this transaction was recognized as revenue. At November 30, 2010, the deferred revenue related to this transaction recorded on the consolidated statement of financial position amounted to $13,692,000.
We expect to generate revenue from sales of EGRIFTATM to EMD Serono throughout fiscal 2011. We also expect to receive royalties on sales of EGRIFTATM in the United States by EMD Serono beginning in the second quarter of fiscal 2011 upon receipt and confirmation of the sales report relating to the previous quarter. The royalty rate we receive from EMD Serono is based on the level of annual net sales achieved, with the rate increasing as higher levels of net sales are attained.
R&D Activities
For the year ended November 30, 2010, consolidated research and development (“R&D”) expenses, net of tax credits, amounted to $14,064,000, compared to $20,810,000 in 2009, a decrease of 32.4%. The majority of R&D expenses incurred in fiscal 2010 are related to follow-up on work derived from the regulatory filing with the FDA, notably responding to the FDA’s questions, and preparation for the FDA Advisory Committee meeting. In parallel with the United States FDA review, we continued to advance our regulatory filing in Europe and to work on a new presentation of the existing formulation of EGRIFTATM. Furthermore, we are in the process of evaluating the initiation of a new clinical program to develop tesamorelin for a new indication. In our discovery and preclinical groups, we continued to develop new peptides and to advance our preclinical program for acute kidney injury (“AKI”). In fiscal 2009, the expenses incurred were principally associated with completing the Phase 3 clinical trials evaluating tesamorelin in HIV-associated lipodystrophy and the preparation of the NDA, which was submitted to the FDA in May 2009. The significant decline in R&D expenses was in accordance with our projected R&D expenses for fiscal 2010. We expect the amount of our R&D expenses for fiscal 2011 to be similar to those of 2010.
Cost of Sales
In fiscal 2010, we began producing through our third-party suppliers inventories in anticipation of the launch of EGRIFTATM in the United States. Cost of sales in fiscal 2010 related to this activity amounted to $469,000 which includes a charge of $192,000, in order to value the inventories at their net realizable value. This write-down was due to raw materials that were not originally bought under the conditions of our current long-term procurement agreements. Cost of sales also included unallocated costs related to the production fees associated with the start-up of the manufacturing process. We expect the cost of sales to increase significantly over the next fiscal

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year as sales of EGRIFTATM grow and as we secure additional suppliers for raw materials and finished products.
General and Administrative Expenses
For the year ended November 30, 2010, general and administrative expenses were $8,002,000, compared to $6,543,000 for the same period in fiscal 2009.
The higher expenses for the year ended November 30, 2010 are primarily due to the cost and expenses associated with professional fees for the recruitment of the new President and Chief Executive Officer, increased corporate communication associated with the FDA Advisory Committee meeting and FDA approval, and conversion of our financial statements to IFRS, as well as costs and expenses related to variations in share-based compensation expenses. The expenses for the year ended November 30, 2009 include the costs associated with the revision of our three-year business plan which were not repeated in fiscal 2010.
Selling and Market Development Expenses
For the year ended November 30, 2010, selling and market development expenses were $2,670,000, compared to $6,862,000 in fiscal 2009.
The selling and market development expenses in fiscal 2010 are principally composed of business development expenses and market research outside the United States and the costs of managing the agreement with EMD Serono. In fiscal 2009, we incurred expenses totaling $4,269,000 in connection with professional fees related to the transaction with EMD Serono.
Net Financial Income
For the year ended November 30, 2010, interest income was $1,562,000 compared to $2,123,000 in fiscal 2009. The year-over-year decline is due to lower average cash positions and a decrease in yield on our bond portfolio. Receipt of the $25,000,000 milestone payment from EMD Serono in November 2010 strengthened the Company’s cash position to a level comparable to that of year-end 2009. Finance costs in fiscal 2010 were a gain of $493,000 compared to an expense of $661,000 in fiscal 2009. Finance costs in fiscal 2010 benefited from a net foreign currency gain of $511,000 compared to a net foreign currency loss of $635,000 in 2009.
Net Results
Reflecting the changes in revenue and expenses described above, we realized a net profit of $8,930,000 ($0.15 per share) for the year ended November 30, 2010, compared to a net loss of $15,156,000 ($0.25 loss per share) for the same period in fiscal 2009. The net profit included revenue of $31,846,000 related to the collaboration and licensing agreement with EMD Serono.

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Quarterly Financial Information
The following table is a summary of the unaudited consolidated operating results of the Company presented in accordance with IFRS for the last eight quarters.
(in thousands of Canadian dollars, except per share amounts)
                                                                 
2010     2009  
    Q4     Q3     Q2     Q1     Q4     Q3     Q2     Q1  
 
Revenue
  $ 26,717     $ 1,717     $ 1,717     $ 1,717     $ 1,718     $ 12,601     $ 1,717     $ 1,432  
Net profit (net loss)
  $ 21,299     $ (3,357 )   $ (4,771 )   $ (4,241 )   $ (4,654 )   $ 5,779     $ (5,454 )   $ (10,827 )
Basic and diluted earnings (loss) per share
  $ 0.35     $ (0.06 )   $ (0.08 )   $ (0.07 )   $ (0.08 )   $ 0.10     $ (0.09 )   $ (0.18 )
As described above, the higher revenue in the third quarter of 2009 is related to the milestone payment of $10,884,000 received from EMD Serono following the FDA’s acceptance to file the Company’s NDA for EGRIFTATM. The higher revenue in the fourth quarter of 2010 is related to the receipt from EMD Serono of a milestone payment of $25,000,000 following marketing approval of EGRIFTATM by the FDA.
Fourth Quarter Comparison
Consolidated revenue for the three-month period ended November 30, 2010, amounted to $26,717,000, compared to $1,718,000 for the same period in fiscal 2009. The higher revenue in the three-month period ended November 30, 2010 is related to the milestone payment of $25,000,000 received at the end of the fourth quarter, following marketing approval of EGRIFTATM by the FDA in the United States.
Consolidated R&D expenses, net of tax credits, totaled $3,172,000 for the fourth quarter of 2010, compared to $4,212,000 for the same period in 2009, a decrease of 24.7%. The R&D expenses incurred in 2009 principally included expenses related to preparing for the FDA Advisory Committee meeting, which was held on May 27, 2010. The R&D expenses incurred in the fourth quarter of fiscal 2010 were mainly related to managing responses to the FDA’s questions and the FDA approval process, in addition to the advancement of our regulatory filing in Europe and on a new presentation of the existing formulation of EGRIFTATM. Furthermore, we are in the process of evaluating the initiation of a new clinical program to develop tesamorelin for a new indication. In our discovery and preclinical groups, we continued to develop new peptides and to advance our preclinical program in AKI.
General and administrative expenses were $2,036,000 in the fourth quarter of 2010, compared to $1,563,000 for the same period in 2009. The higher expenses for 2010 are principally related to the conversion of our financial statements to IFRS and FDA approval of EGRIFTATM in the United States.
Selling and market development expenses amounted to $761,000 for the fourth quarter of 2010, compared to $1,069,000 for the same period in 2009. The sales and market development

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expenses in fiscal 2010 are principally composed of business development expenses outside the United States and the costs of performing our obligations under the agreement with EMD Serono. The increased costs in 2009 were principally due to market development costs in Europe to increase the awareness of lipodystrophy as a disease.
Consequently, we recorded a net profit for the three-month period ended November 30, 2010, of $21,299,000 ($0.35 per share), compared to a net loss of $4,654,000 ($0.08 per share) for the same period in 2009.
In the three-month period ended November 30, 2010, cash flows from operating activities, excluding changes in operating assets and liabilities, was $22,037,000, compared to a use of cash of $4,333,000 for the same period in 2009.
Liquidity and Capital Resources
Our objective in managing capital is to ensure a sufficient liquidity position to finance our research and development activities, general and administrative expenses, working capital and capital spending.
To fund our activities, we have relied primarily on public offerings of common shares in Canada and private placements of our common shares as well as on up-front payments and milestone payments primarily associated with the agreement with EMD Serono. When possible, we try to optimize our liquidity position using non-dilutive sources, including investment tax credits, grants and interest income.
For the year ended November 30, 2010, cash flow from operating activities, excluding changes in operating assets and liabilities, was $11,160,000 compared to a use of cash of $13,547,000 in fiscal 2009. The cash flow generated in fiscal 2010 is principally related to payments received under the agreement with EMD Serono as well as decreases in R&D expenses and in selling and market development expenses.
At November 30, 2010, cash and bonds amounted to $64,550,000 and tax credits and grants receivable amounted to $332,000, for a total of $64,882,000.
At this time, apart from our unused $1,800,000 revolving credit facility, we do not have any additional arrangements for external debt financings, and are not certain whether any proposed debt financing in the future, would be available on acceptable terms, or available at all. We may seek additional capital through the incurrence of debt, the issuance of equity or other financing alternatives.
We invest our available cash in highly liquid fixed income instruments from governmental, municipal and paragovernmental bodies ($37,542,000 at November 30, 2010) as well as corporate bonds with high credit ratings ($359,000 at November 30, 2010).
In the year ended November 30, 2010, the Company received share subscriptions amounting to $15,000 ($96,000 in fiscal 2009) for the issuance of 2,880 common shares (34,466 in 2009) in connection with the share purchase plan. Under the terms of the agreement with EMD Serono, we issued 2,179,837 common shares for a cash consideration of US$8,000,000 (C$9,854,000) during the first quarter of 2009.

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In fiscal 2010, our third-party suppliers began to manufacture inventory of EGRIFTATM for commercialization in the United States. We expect to continue to build our inventory until we reach an adequate level of finished goods to meet the needs of our partners and this will significantly increase our working capital needs in fiscal 2011.
Contractual Obligations
Commitments
We rent our headquarters and main office pursuant to a lease expiring in April 2021. At November 30, 2010 and 2009, and at December 1, 2008, the minimum payments required under the terms of the non-cancellable lease were as follows:
                         
    November 30,     November 30,     December 1,  
(in thousands of Canadian dollars)   2010     2009     2008  
 
Less than one year
    55       340       816  
Between one and five years
    2,239       2,020       340  
More than five years
    3,943       4,216        
 
 
    6,237       6,576       1,156  
Long-Term Procurement Agreements
During and after the years ended November 30, 2010 and 2009, we entered into long-term procurement agreements with third-party suppliers in anticipation of the commercialization of EGRIFTATM.
Credit Facility
We have a $1,800,000 revolving credit facility, bearing interest at prime plus 0.5%. Under the term of the revolving credit facility, the market value of investments held must always be equivalent to 150% of amounts drawn under the facility. If the market value falls below $7,000,000, we will provide the bank with a first rank movable hypothec (security interest) of $1,850,000 on securities judged satisfactory by the bank. As at November 30, 2010, we did not have any borrowings outstanding under this credit facility.
Post-Approval Commitments
In connection with its approval, the FDA has required the following three post-approval commitments:
    a single vial formulation of EGRIFTATM (the development of a new presentation of the same formulation);
 
    a long-term observational safety study using EGRIFTATM; and
 
    a Phase 4 clinical trial using EGRIFTATM.
We have developed a new presentation of EGRIFTATM which is more user-friendly than its current presentation because we expect it to be quicker and easier for a patient to manipulate. In the new presentation of the same formulation, EGRIFTATM will be available as a single unit dose (one vial containing 2 mg of tesamorelin) of sterile, lyophilized powder to be reconstituted with

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sterile water for injection. This new presentation complies with the first of the FDA’s post-approval requirements. The FDA requires that this new presentation be available by November 2013.
The purpose of the long-term observational study required by the FDA is to evaluate the safety of long-term administration of EGRIFTATM. The primary purpose of the Phase 4 clinical trial is to assess whether EGRIFTATM has an impact on diabetic retinopathy in diabetic HIV-infected patients with lipodystrophy and excess abdominal fat. The FDA requires that the proposals for the long-term observational safety study and Phase 4 clinical trial be completed within six months of our having received approval to commercialize EGRIFTATM. Under the terms of our collaboration and licensing agreement, EMD Serono is responsible for finalizing such proposals. We will continue to support EMD Serono in developing and finalizing such proposals.
Contingent Liability
On July 26, 2010, we received a motion of authorization to institute a class action lawsuit against the Company, a director and a former executive officer (the “Motion”). This Motion was filed in the Superior Court of Quebec, district of Montreal. The applicant is seeking to initiate a class action suit to represent the class of persons who were shareholders at May 21, 2010 and who sold their common shares of the Company on May 25 or 26, 2010. This applicant alleges that the Company did not comply with its continuous disclosure obligations as a reporting issuer by failing to disclose certain alleged adverse effects relating to the administration of EGRIFTATM. The Company is of the view that the allegations contained in the Motion are entirely without merit and intends to take all appropriate actions to vigorously defend its position.
The Motion has not yet been heard by the Superior Court of Quebec and a date has not been set for the hearing.
The Company has subscribed to insurance covering its potential liability and the potential liability of its directors and officers in the performance of all their duties for the Company subject to a $200,000 deductible. At November 30, 2010, an amount of $96,000 in legal fees had been accrued and included in general and administrative expenses, of which $61,000 was paid during the year and $35,000 remained in accounts payable and accrued liabilities.
Off-Balance Sheet Arrangements
We were not involved in any off-balance sheet arrangements for the year ended November 30, 2010, with the exception of the lease of our headquarters as described above.
Subsequent Events
Distribution and Licensing Agreements
On December 6, 2010, we announced the signing of a distribution and licensing agreement with Sanofi covering the commercial rights for EGRIFTATM in Latin America, Africa, and the Middle East for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy.
Under the terms of the Agreement, we will sell EGRIFTATM to Sanofi at a transfer price equal to the higher of a percentage of Sanofi’s net selling price and a predetermined floor price. We have retained all future development rights to EGRIFTATM and will be responsible for conducting

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research and development for any additional potential indications. Sanofi will be responsible for conducting all regulatory activities for EGRIFTATM in the aforementioned territories, including applications for approval in the different countries for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy. We also granted Sanofi an option to commercialize tesamorelin for other indications in the territories mentioned above. If such option is not exercised, or is declined, by Sanofi, we may commercialize tesamorelin for such indications on our own or with a third-party.
On February 3, 2011, we entered into a distribution and licensing agreement with Ferrer covering the commercial rights for EGRIFTATM for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy in Europe, Russia, South Korea, Taiwan, Thailand and certain central Asian countries.
Under the terms of the Agreement, we will sell EGRIFTATM to Ferrer at a transfer price equal to the higher of a significant percentage of Ferrer’s net selling price and a predetermined floor price. We have retained all development rights to EGRIFTATM for other indications and will be responsible for conducting research and development for any additional programs. Ferrer will be responsible for conducting all regulatory and commercialization activities in connection with EGRIFTATM for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy in the territories subject to the agreement. We will be responsible for the manufacture and supply of EGRIFTATM to Ferrer. We have the option to co-promote EGRIFTATM for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the territories. Ferrer has the option to enter into a co-development and commercialization agreement using tesamorelin relating to any such new indications. The terms and conditions of such a co-development and commercialization agreement will be negotiated based on any additional program chosen for development.
Deferred Share Unit Plan
In December 2010, we adopted a deferred share unit plan (“Plan”) to provide long-term incentive compensation for our directors and executive officers. Under the Plan, directors must receive their annual remuneration as a board member in fully vested deferred share unites (“DSUs”) until they reach a percentage of their annual remuneration and, once such percentage is attained, they have the option to elect to receive part or all of their annual remuneration in DSUs. Under the plan, executive officers have the option of receiving all or a portion of their annual bonus in the form of fully-vested DSUs. The units are only redeemable for cash when a participant ceases to be an employee or member of the Board of Directors. We manage the risk associated with the issuance of the DSU by entering into a yearly forward contract with a third-party. As at February 7, 2011, all of the 99,912 DSUs outstanding were covered by a prepaid forward contract.
Stock Option Plan
Between December 1, 2010 and February 7, 2011, the Company granted 250,000 options at an exercise price of $5.65 per share. Also, 27,832 options were forfeited and expired at a weighted exercise average price of $12.06 per share and 3,000 options were exercised at a weighted exercise average price of $1.80 per share for a cash consideration of $5,000.

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Financial Risk Management
This section provides disclosure relating to the nature and extent of our exposure to risks arising from financial instruments, including credit risk, liquidity risk, currency risk and interest rate risk, and how we manage those risks.
Credit Risk
The Company’s exposure to credit risk currently relates to accounts receivables with only one customer (see note 4 of the Audited Consolidated Financial Statements). Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. We regularly monitor credit risk exposure and take steps to mitigate the likelihood of this exposure resulting in losses.
Financial instruments other than cash and trade and other receivables that potentially subject the Company to significant credit risk consist principally of bonds. We invest our available cash in highly liquid fixed income instruments from governmental, paragovernmental and municipal bodies ($37,542,000 as at November 30, 2010) as well as from companies with high credit ratings ($359,000 as at November 30, 2010). As at November 30, 2010, we were not exposed to any credit risk over the carrying amount of the bonds.
Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they become due. We manage liquidity risk through the management of our capital structure, as outlined under “Liquidity and Capital Resources”. We also manage liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors and/or the Audit Committee reviews and approves our operating and capital budgets, as well as any material transactions out of the ordinary course of business.
We have adopted an investment policy in respect of the safety and preservation of capital to ensure that our liquidity needs are met. The instruments are selected with regard to the expected timing of expenditures and prevailing interest rates.
The required payments on the contractual maturities of financial liabilities, as well as the payments required under the terms of the operating lease, as at November 30, 2010, are presented in notes 20 and 23 of the Audited Consolidated Financial Statements.
Currency Risk
We are 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 our business transactions denominated in currencies other than the Canadian dollar, primarily revenues from milestone payments and expenses for research and development incurred in U.S. dollars, euros and pounds sterling (“GBP”). We do not use derivative financial instruments to reduce our foreign exchange exposure.
We manage currency risk by maintaining cash in U.S. dollars on hand to support U.S. forecasted cash budgets for a maximum 12-month period. We do not currently view our exposure to the euro and GBP as a significant foreign exchange risk due to the limited volume of transactions conducted by the Company in these currencies.
Exchange rate fluctuations for foreign currency transactions can cause cash flow as well as amounts recorded in consolidated statement of comprehensive income to vary from period to

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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 Canadian dollar 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 statement of comprehensive income. Given our policy on the management of our U.S. foreign currency risk, we do not believe, a sudden change in foreign exchange rates would impair or enhance our ability to pay our U.S. dollar denominated obligations.
The following table provides significant items exposed to currency risk as at November 30, 2010:
                         
                    November 30,  
                    2010  
(in thousands of dollars)   $US     EURO     GBP  
 
Cash
    26,424             1  
Trade and other receivables
                 
Accounts payable and accrued liabilities
    (465 )     (26 )     (81 )
 
                       
 
Items exposed to currency risk
    25,959       (26 )     (80 )
The following exchange rates applied during the year ended November 30, 2010:
                 
    Average rate   Reporting date rate
 
$US — C$
    1.0345       1.0266  
EURO — C$
    1.3848       1.3326  
GBP — C$
    1.6051       1.5969  
 
In fiscal 2010, based on our foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5% strengthening of the Canadian dollar would have increased the net profit as follows, assuming that all other variables remained constant:
                         
(in thousands of dollars)   $US   EURO   GBP
 
Increase in net profit
    1,298       (1 )     (4 )
 
An assumed 5% weakening of the Canadian dollar would have had an equal but opposite effect on the above currencies to the amounts shown above, assuming that all other variables remain constant.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
Our short-term bonds 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 we will realize a

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loss as a result of a decline in the fair value of our bonds is limited because these investments, although they are classified as available for sale, are generally held to maturity. The unrealized gains or losses on bonds are recorded in accumulated other comprehensive income.
Based on the value of our short and long-term bonds at November 30, 2010, an assumed 0.5% decrease in market interest rates would have increased the fair value of these bonds and the accumulated other comprehensive income by approximately $336,000; an assumed increase in interest rate of 0.5% would have an equal but opposite effect, assuming that all other variables remained constant.
Cash bears interest at a variable rate. Trade and other receivables, accounts payable and accrued liabilities bear no interest.
Based on the average value of variable interest-bearing cash during year ended November 30, 2010 ($3,219,000), an assumed 0.5% increase in interest rates during such period would have increased the future cash flow and the net profit by approximately $16,000; an assumed decrease of 0.5% would have had an equal but opposite effect.
Financial Instruments
We have determined that the carrying values of our short-term financial assets and liabilities, including cash, trade and other receivables as well as accounts payable and accrued liabilities, approximate their fair value because of the relatively short period to maturity of the instruments.
Bonds are stated at estimated fair value, determined by inputs that are primarily based on broker quotes at the reporting date (level 2 inputs — see note 22 — Determination of fair values).
Critical Accounting Estimates
Use of Estimates and the Exercise of Judgment
The preparation of our Audited Consolidated Financial Statements in conformity with IFRS requires management to 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.
Information about critical judgments in applying accounting policies and assumption and estimation uncertainties that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes to the Audited Consolidated Financial Statements:
Note 4 — Revenue and deferred revenue
Note 15 (iv) — Stock option plan
Note 16 — Income taxes
Note 18 — Contingent liability
Other areas of judgement and uncertainty relate to the estimation of accruals for clinical trial expenses, the recoverability of inventories, the measurement of the amount and assessment of the recoverability of tax credits and grants receivable and capitalization of development expenditures.

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Reported amounts and note disclosure reflect the overall economic conditions that are most likely to occur and the anticipated measures management intends to take. Actual results could differ from those estimates.
The above estimates and assumptions are reviewed regularly. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Conversion to IFRS
In February 2008, the Accounting Standards Board of Canada (“AcSB”) announced that accounting standards in Canada, as used by public companies, would converge with IFRS, for financial periods beginning on and after January 1, 2011 with the option to early adopt IFRS upon receipt of approval from the Canadian Securities regulatory authorities. In the fourth quarter, we filed a request to adopt IFRS two years in advance of the date required under the AcSB, using December 1, 2008 as the date of transition and December 1, 2009 as the changeover date. Our request was granted and as a result, the consolidated financial statements for the year ended November 30, 2010 are our first annual financial statements prepared in conformity with IFRS.
Because we had previously filed financial statements and MD&As for the first, second and third quarters of 2010 with comparisons to 2009 in accordance with Canadian GAAP, these statements were restated and re-filed on February 8, 2011 to reflect our adoption of IFRS. Periods prior to December 1, 2008 have not been restated.
In preparing these first IFRS financial statements, we used the IFRS accounting policies in effect as at November 30, 2010, including IFRS 1 — First-time Adoption of International Financial Reporting Standards (“IFRS 1”). IFRS 1 provides guidance for an entity’s initial adoption of IFRS and outlines that, in general, an entity applies the principles under IFRS retrospectively with adjustments arising on conversion from Canadian GAAP to IFRS being directly recognized in retained earnings as of the beginning of the first comparative financial statements presented. IFRS 1 also requires companies adopting IFRS to reconcile equity and net earnings from the previously reported Canadian GAAP amounts to the restated IFRS amounts. Our reconciliation of equity under Canadian GAAP as at December 1, 2008, the date of transition, and as at November 30, 2009 to the restated IFRS amounts are included in note 27 of the consolidated financial statements, as is the reconciliation of comprehensive income for the year-ended November 30, 2009.
IFRS 1 also provides certain optional exemptions from retrospective application of certain IFRS requirements as well as mandatory exceptions which prohibit retrospective application of standards.
We elected to apply the following optional exemptions from full retrospective application:
(i) IFRS 2 — Share-based Payment: IFRS 1 encourages the application of IFRS 2, Share-based Payment provisions to equity instruments granted on or before November 7, 2002, but permits the application only to equity instruments granted after November 7, 2002 that were not vested by the transition date. As permitted by this exemption, the Company applied IFRS 2 only to equity instruments granted after November 7, 2002 that were not vested by December 1, 2008.
(ii) Designation of financial assets and financial liabilities exemption: we elected to redesignate cash from the held for trading category to loans and receivables.

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We also followed the mandatory exemptions applicable to the Company as described below:
Estimates — Hindsight cannot be used to create or revise estimates. Estimates previously made under Canadian GAAP cannot be revised for application of IFRS except where necessary to reflect any difference in accounting policies.
Impact of IFRS on the Company’s Financial Statements
The adoption of IFRS resulted in some changes to our accounting policies that were applied in the recognition, measurement and disclosure of balances and transactions in our financial statements. However, none of the changes to our accounting policies resulted in significant changes to line items within our financial statements.
The following provides a summary of our evaluation of important changes to accounting policies in key areas:
IFRS 2, Share-based Payment (“IFRS 2”)
Under IFRS, when stock option awards vest gradually, each tranche is to be considered as a separate award, while under Canadian GAAP, companies can make a policy choice to consider gradually vested tranches as a single award. Similarly, the IFRS standard requires that forfeiture estimates be established at the time of the initial fair value assessment of share-based payments rather than to account for the forfeitures as they occur. Therefore, the compensation expense will have to be recognized over the expected term of each tranche and take into account the impact of the differences in accounting for forfeitures. As a result of this change, an amount of $175,000 was recorded to deficit at the transition date, with the counterpart to contributed surplus.
IAS 36, Impairment of Assets (“IAS 36”)
Under Canadian GAAP impairment standards for non-financial assets, a write-down to estimated fair value is recognized if the estimated undiscounted future cash flows from an asset or group of assets are less than their carrying value. IAS 36 requires a write-down to be recognized if the recoverable amount, determined as the higher of the estimated fair value less costs to sell or value in use, is less than carrying value. We performed impairment testing as of December 1, 2008 and concluded that no impairment charge was required under IFRS. No impairment indicators were identified for the period between the transition date and November 30, 2009 and November 30, 2010. IAS 36 also permits the reversal of certain impairment charges where conditions have changed. We reviewed past impairment charges and concluded that there was no justification for reversal of past impairment charges.
IAS 1, Presentation of Financial Statements (“IAS 1”)
Financial statement presentation is addressed in conjunction with the related IFRS standards. Certain additional disclosures were required in the notes to the financial statements and the statement of comprehensive income was modified to reflect a presentation by function. The reclassifications required as a result of this change are described in note 27 (c) of the consolidated financial statements.
Other Standards
Our examination of all other standards, including for example, IAS 21 — The Effects of Changes in Foreign Exchange Rates, IAS 37 — Provisions, Contingent Liabilities and Contingent Assets, and IAS 18 — Revenue, revealed no significant adjustment was necessary other than enhanced disclosures.

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Note 27 of the consolidated financial statements for the year ended November 30, 2010 contains a detailed description of our conversion to IFRS, including a line-by-line reconciliation of our financial statements previously prepared under Canadian GAAP to those under IFRS as at November 30, 2009 and December 1, 2008.
Impact on the Business
The impact of the conversion to IFRS on the Company was minimal and therefore resulted in a limited number of adjustments. Our systems easily accommodated the required changes. Our internal controls and disclosure controls and procedures did not require significant modification as a result of its conversion to IFRS. Furthermore, there was no impact on our contractual arrangements or compliance thereto.
Impact on Information Systems and Technology
The transition had minimal impacts on our information systems. The areas where information systems were most impacted were minor modifications to certain general ledger accounts, sub-ledgers and end-user reports to accommodate IFRS accounting adjustments, recording, and heightened disclosures.
Impact on Internal Control over Financial Reporting and Disclosure Controls and Procedures
Our internal controls over financial reporting were also not significantly affected by the transition to IFRS. The IFRS differences required presentation and process changes to report more detailed information in the notes to the financial statements, as well as certain changes to the recognition and measurement practices. Disclosure controls and procedures were adapted to take into consideration the changes in recognition, measurement and disclosure practices but the impact was minimal as well.
Impact on Financial Reporting Expertise
Training and education was provided to all members of the finance team who are directly affected by the transition to IFRS. This training focused mainly on the process changes required and an overview of the reasons behind the changes from a standards perspective.
New accounting policies
Certain pronouncements were issued by the IASB or International Financial Reporting Interpretation Committee that are mandatory for annual periods beginning after January 1, 2010 or later periods. Many of these updates are not applicable or are inconsequential to us and have been excluded from the discussion below. The remaining pronouncements are being assessed to determine their impact on our results and financial position:
Annual improvements to IFRS
The IASB’s improvements to IFRS published in April 2009 contain fifteen amendments to twelve standards that result in accounting changes for presentation, recognition or measurement purposes largely for annual periods beginning on or after January 1, 2010, with early adoption permitted. These amendments were considered by the Company and deemed to be not applicable to the Company other than for the amendment to IAS 17 — Leases relating to leases which include both land and buildings elements. In this case, the Company early adopted this amendment.

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The IASB’s improvements to IFRS contain seven amendments that result in accounting changes for presentation, recognition or measurement purposes. The most significant features of the IASB’s annual improvements project published in May 2010 are included under the specific revisions to standards discussed below.
(i)   IFRS 3:
 
    Revision to IFRS 3, Business Combinations:
      Effective for annual periods beginning on or after July 1, 2010 with earlier adoption permitted.
 
      Clarification on the following areas:
    the choice of measuring non-controlling interests at fair value or at the proportionate share of the acquiree’s net assets applies only to instruments that represent present ownership interests and entitle their holders to a proportionate share of the net assets in the event of liquidation. All other components of non-controlling interest are measured at fair value unless another measurement basis is required by IFRS.
 
    application guidance relating to the accounting for share-based payments in IFRS 3 applies to all share-based payment transactions that are part of a business combination, including un-replaced awards (i.e., unexpired awards over the acquiree shares that remain outstanding rather than being replaced by the acquirer) and voluntarily replaced share-based payment awards.
(ii)   IFRS 7:
      Amendment to IFRS 7, Financial Instruments: Disclosures:
 
      Effective for annual periods beginning on or after January 1, 2011 with earlier adoption permitted.
 
      Multiple clarifications related to the disclosure of financial instruments and in particular in regards to transfers of financial assets.
(iii)   IAS 1:
      Amendment to IAS 1, Presentation of Financial Statements:
 
      Effective for annual periods beginning on or after January 1, 2011 with earlier adoption permitted.
 
      Entities may present the analysis of the components of other comprehensive income either in the statement of changes in equity or within the notes to the financial statements.
(iv)   IAS 27:
      Amendment to IAS 27, Consolidated and Separate Financial Statements:
 
      Effective for annual periods beginning on or after January 1, 2011 with earlier adoption permitted.
 
      The 2008 revisions to this standard resulted in consequential amendments to IAS 21,
 
      The Effects of Changes in Foreign Exchange Rates, IAS 28, Investments in Associates, and IAS 31, Interests in Joint Ventures. IAS 27 now provides that these amendments are to be applied prospectively.
(v)   IAS 34:
      Amendment to IAS 34, Interim Financial Reporting:
 
      Effective for annual periods beginning on or after January 1, 2011 with earlier adoption permitted.
 
      The amendments place greater emphasis on the disclosure principles for interim financial reporting involving significant events and transactions, including changes to

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      fair value measurements and the need to update relevant information from the most recent annual report.
New or revised standards and interpretations
In addition, the following new or revised standards and interpretations have been issued but are not yet applicable to the Company:
(i)   IAS 24:
      Amendments to IAS 24, Related Party Disclosures:
 
      Effective for annual periods beginning on or after January 1, 2011 with earlier adoption is permitted.
 
      There are limited differences in the definition of what constitutes a related party; however, the amendment requires more detailed disclosures regarding commitments.
(ii)   IFRS 8:
      IFRS 8, Operating Segments:
 
      Effective for annual periods beginning on or after January 1, 2010. Requires purchase information about segment assets.
(iii)   IFRS 9:
      New standard IFRS 9, Financial Instruments:
 
      Effective for annual periods beginning on or after January 1, 2013 with earlier adoption permitted.
 
      As part of the project to replace IAS 39, Financial Instruments: Recognition and Measurement, this standard retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets. More specifically, the standard:
    deals with classification and measurement of financial assets
 
    establishes two primary measurement categories for financial assets: amortized cost and fair value
 
    classification depends on entity’s business model and the contractual cash flow characteristics of the financial asset
 
    eliminates the existing categories: held to maturity, available for sale, and loans and receivables.
Certain changes were also made regarding the fair value option for financial liabilities and accounting for certain derivatives linked to unquoted equity instruments.
Outstanding share data
At February 7, 2011, the common shares issued and outstanding were 60,515,764 while outstanding options granted under the stock option plan were 3,068,306.

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Disclosure controls and procedures and internal control over financial reporting
As at November 30, 2010, an evaluation of the design and operating effectiveness of our disclosure controls and procedures, as defined in the rules of Canadian Securities Administrators, was carried out. Based on that evaluation, the President and Chief Executive Officer and the Senior Executive Vice-President and Chief Financial Officer concluded that the design and operating effectiveness of those disclosure controls and procedures were effective.
Also as November 30, 2010, an evaluation of the design and operating effectiveness of internal controls over financial reporting, as defined in the rules of the Canadian Securities Administrators, was carried out to provide reasonable assurance regarding the reliability of financial reporting and financial statement compliance with IFRS. Based on that evaluation, the President and Chief Executive Officer and the Senior Executive Vice-President and Chief Financial Officer concluded that the design and operating effectiveness of internal controls over financial reporting were effective.
These evaluations were based on the framework established in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, a recognized control model, and the requirements of Multilateral Instrument 52-109 of the Canadian Securities Administrators. A disclosure committee comprised of members of senior management assists the President and Chief Executive Officer and the Senior Executive Vice-President and Chief Financial Officer in their responsibilities.
All control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of the controls or procedures. As a result, there is no certainty that our disclosure controls and procedures or internal control over financial reporting will prevent all errors or all fraud. There were no changes in our internal controls over financial reporting that occurred during the year ended November 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Risks and uncertainties
Investors should understand that we operate in a high risk industry. We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition or operating results. Investors should carefully consider the risks described below before purchasing our securities. The risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks.

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Risks Related to the Commercialization of our Product and Product Candidates
Our commercial success depends largely on the commercialization of EGRIFTATM; the failure of EGRIFTATM to obtain commercial acceptance would have a material adverse effect on us.
Our ability to generate revenues in the future is primarily based on the commercialization of EGRIFTATM for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy. In the short-term, these revenues should be primarily derived from the U.S. market alone. Although we have entered into a collaboration and licensing agreement with EMD Serono for the commercialization of EGRIFTATM in the United States, there can be no assurance that EGRIFTATM will be successfully commercialized in the United States, or in any other country. Although we are developing other peptides, all of them are at earlier stages of development and none of them may reach the clinical trial phase, obtain regulatory approval or, even if approved, be successfully commercialized.
The overall commercialization success of EGRIFTATM for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy will depend on several factors, including:
    receipt of regulatory approvals for EGRIFTATM from regulatory agencies in the territories other than the United States in which we wish to expand the commercialization of tesamorelin;
 
    market acceptance of EGRIFTATM by the medical community, patients and third- party payors (such as governmental health administration authorities and private health coverage insurers);
 
    the amount of resources devoted by our commercial partners to commercialize EGRIFTATM in their respective territories;
 
    maintaining manufacturing and supply agreements to ensure the availability of commercial quantities of EGRIFTATM through validated processes;
 
    the number of competitors in our market; and
 
    protecting and enforcing our intellectual property and avoiding patent infringement claims.
The inability to commercialize EGRIFTATM in the United States for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the short term would delay our capacity to generate revenues and would have a material adverse effect on our financial condition and operating results.

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We are or will be dependent on a limited number of collaboration and licensing agreements for the commercialization of EGRIFTATM in the United States, Europe, Latin America, Africa and the Middle East. These agreements place the commercialization of EGRIFTATM in these markets outside of our control.
Although our collaboration and licensing agreements with EMD Serono, Sanofi and Ferrer contain provisions governing their respective responsibilities as partners for the commercialization of EGRIFTATM in their respective territories, our dependence on these partners to commercialize EGRIFTATM is subject to a number of risks, including:
    our limited control of the amount and timing of resources that our commercial partners will be devoting to the commercialization, marketing and distribution of tesamorelin, including obtaining patient reimbursement for EGRIFTATM, which could adversely affect our ability to obtain or maximize our royalty payments;
 
    disputes or litigation that may arise between us and our commercial partners, which could adversely affect the commercialization of tesamorelin, all of which would divert our management’s attention and our resources;
 
    our commercial partners not properly defending our intellectual property rights or using them in such a way as to expose us to potential litigation, which could, in both cases, adversely affect the value of our intellectual property rights; and
 
    corporate reorganizations or changes in business strategies of our commercial partners, which could adversely affect a commercial partner’s willingness or ability to fulfill its obligations under its respective agreement.
Our collaboration and licensing agreements may be terminated by our partners in the event of a breach by us of our obligations under such agreements, including our obligation to supply EGRIFTATM , for which we rely on third parties. Our collaboration and licensing agreement with EMD Serono can also be terminated by EMD Serono for their convenience on 180 days notice to us. Such a termination could have an adverse effect on our revenues related to the commercialization of EGRIFTATM in the United States. In addition, EMD Serono has listed a patent held by one of its affiliates in the Orange Book under the Hatch-Waxman Act with respect to EGRIFTATM in HIV-associated lipodystrophy. In the event of a termination of our agreement with EMD Serono, EMD Serono could assert that such patent would be infringed by our continued sale of EGRIFTATM in the United States. Any such assertion would divert our management’s attention and could have a material adverse effect on our results of operations.
If any one of our commercial partners terminates their agreement with us or fails to effectively commercialize EGRIFTATM, for any of the foregoing or other reasons, we may not be able to replace the commercial partner and any of these events would have a material adverse effect on our business, results of operations and our ability to achieve future profitability, and could cause our stock price to decline.
We rely on third parties for the manufacture and supply of EGRIFTATM and tesamorelin and such reliance may adversely affect us if the third parties are unable or unwilling to fulfill their obligations.
The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process

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controls. We do not own or operate manufacturing facilities for the production of tesamorelin or any of our other product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on third parties to manufacture and supply all of our required raw materials, drug substance and drug product for our preclinical research, clinical trials and commercial sales. For tesamorelin for clinical studies and EGRIFTATM for commercial sales, we are currently using, and relying on, single suppliers and single manufacturers for starting materials and the final drug substance. Although potential alternative suppliers and manufacturers have been identified, we have not qualified these vendors to date and no assurance can be given that such suppliers will be qualified in the future or receive necessary regulatory approval.
Our reliance on third-party manufacturers exposes us to a number of risks. We may be subject to delays in or suspension of the manufacturing of EGRIFTATM and tesamorelin if a third-party manufacturer:
    becomes unavailable to us for any reason, including as a result of the failure to comply with good manufacturing practices, or GMP, regulations;
 
    experiences manufacturing problems or other operational failures, such as equipment failures or unplanned facility shutdowns required to comply with GMP or damage from any event, including fire, flood, earthquake, business restructuring or insolvency; or
 
    fails to perform its contractual obligations under our agreement, such as failing to deliver the quantities requested on a timely basis.
Any delay in or suspension of the supply of EGRIFTATM could delay or prevent the sale of EGRIFTATM and, accordingly, adversely affect our revenues and results of operations. In addition, any manufacturing delay or delay in delivering EGRIFTATM may result in our being in default under our collaboration agreements. If the damage to a supplier’s manufacturer facility is extensive, or, for any reason, it does not operate in compliance with GMP or the third-party manufacturer is unable or refuses to perform its obligations under our agreement, we would need to find an alternative third-party manufacturer. The selection of a replacement third-party manufacturer would be time-consuming and costly since we would need to validate the manufacturing facility of such new third-party manufacturer. The validation process would include 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. In addition, the third-party manufacturer would have to familiarize itself with our technology. Any delay in finding an alternative third-party manufacturer of tesamorelin and EGRIFTATM could result in a shortage of such analogue or product, which could materially adversely affect our business and results of operations.
Even though we have received regulatory approval for EGRIFTATM in the United States, we still may not be able to successfully commercialize it if we do not gain market acceptance and the revenue that we generate from its sales, if any, may be limited.
The commercial success of EGRIFTATM or any future products for which we obtain marketing approval from the FDA or other regulatory authorities, will depend upon the acceptance of such product by the medical community, including physicians, patients and health care payors. The degree of market acceptance of any of our products will depend on a number of factors, including:

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    acceptance of the product by physicians and patients as safe and effective treatments and addressing a significant unmet medical need;
 
    product price;
 
    the effectiveness of our sales and marketing efforts (or those of our commercial partners);
 
    storage requirements and ease of administration;
 
    dosing regimen;
 
    safety and efficacy;
 
    prevalence and severity of side effects;
 
    competitive products;
 
    the ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors; and
 
    the willingness and ability of patients to pay out-of-pocket in the absence of third- party coverage.
If EGRIFTATM does not achieve an adequate level of acceptance by physicians, health care payors and patients, we may not generate sufficient revenue from this product, and we may not be able to achieve profitability. Our efforts, and the efforts of our commercial partners, to educate the medical community and third-party payors on the benefits of tesamorelin may require significant resources and may never be successful.
We have no internal sales, marketing or distribution capabilities so we must rely on strategic alliance agreements with third parties for the sale and marketing of EGRIFTATM or any future products.
We currently have no internal sales, marketing or distribution capabilities and we rely on our commercial partners to market and sell EGRIFTATM in their respective territories. Our agreements with our commercial partners contain termination provisions which, if exercised, could delay or suspend the commercialization of EGRIFTATM or any future products.
In the event of any such termination, in order to continue commercialization, we would be required to build our own sales force or enter into agreements with third parties to provide such capabilities. We currently have limited marketing capabilities and we have limited experience in developing, training or managing a sales force. The development of a sales force would be costly and would be time-consuming given the limited experience we have in this area. To the extent we develop a sales force, we could be competing against companies that have more experience in managing a sales force than we have and that have access to more funds than we with which to manage a sales force. Consequently, there can be no assurance that a sales force which we develop would be efficient and would maximize the revenues derived from the sale of EGRIFTATM or any future products.

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We are substantially dependent on revenues from EGRIFTATM.
Our current and future revenues depend substantially upon sales of EGRIFTATM by our commercial partners, EMD Serono, Sanofi and Ferrer. Any negative developments relating to this product, such as safety or efficacy issues, the introduction or greater acceptance of competing products, including those marketed and sold by our commercial partners, or adverse regulatory or legislative developments, would have a material adverse effect on our business, prospects and results of operations. Although we continue to develop additional product candidates for commercialization, we expect to be substantially dependent on sales from EGRIFTATM for the foreseeable future. A decline in sales from this product would adversely affect our business.
Our levels of revenues are highly dependent on obtaining patient reimbursement for EGRIFTATM.
Market acceptance and sales of EGRIFTATM will 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 and elsewhere. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, 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 have attempted 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.
Under our agreements with our commercial partners, they are responsible for seeking reimbursement of EGRIFTATM in their respective territories and as a result we have no control over whether or what level of reimbursement is achieved.
We cannot be sure that reimbursement by insurers, government or other third parties will be available for EGRIFTATM and, if reimbursement is available, the level of reimbursement provided to patients. Reimbursement may impact the demand for, or the price of, EGRIFTATM and our future products for which we obtain marketing approval. If reimbursement is not available or is available only in limited amount, our commercial partners may not be able to successfully commercialize EGRIFTATM or our future products and it will have a material adverse effect on our revenues and royalties, business and prospects.
A variety of risks associated with our international business relationships could materially adversely affect our business.
International business relationships in the United States, Europe, Latin America, Africa, the Middle East and elsewhere subject us to additional risks, including:
    differing regulatory requirements for drug approvals in foreign countries;
 
    potentially reduced protection for intellectual property rights;
 
    potential third-party patent rights in foreign countries;

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    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;
 
    unexpected changes in tariffs, trade barriers and regulatory requirements;
 
    economic weakness, including inflation, or political instability, particularly in foreign economies and markets;
 
    compliance with tax, employment, immigration and labor laws for employees traveling abroad;
 
    foreign taxes;
 
    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;
 
    workforce uncertainty in countries where labor unrest is more common than in the United States and Canada;
 
    production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
 
    business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires.
These and other risks of international business relationships may materially adversely affect our business, prospects, results of operations and financial condition.
Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
In several countries, including countries which are in Europe, Latin America, Africa, and the Middle East, the pricing of prescription drugs may be subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time and delay the marketing of a product. To obtain reimbursement or pricing approval in some countries, a clinical trial that compares the cost-effectiveness of a product candidate to other available therapies may be required. If reimbursement of our product is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our commercial partners may not be willing to devote resources to market and commercialize EGRIFTATM or may decide to cease marketing such product. In such case, our business, prospects and results of operations could be materially adversely affected.
We face competition and the development of new products by other companies could materially adversely affect our business and products.
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

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products, most of which have substantially greater financial, technical and personnel resources than us. Although we believe that we have no direct competitors for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy, we could face indirect competition from other companies developing and/or commercializing metabolic products and/or other products that reduce or eliminate the occurrence of lipodystrophy.
In the other clinical programs that we are currently evaluating for development, there may exist companies that are at a more advanced stage of developing a product to treat the diseases for which we are evaluating clinical programs. Some of these competitors could have access to capital resources, research and development personnel and facilities that are superior to ours. In addition, some of these competitors could be more experienced than we are in the development and commercialization of medical products and already have a sales force in place to launch new products. Consequently, they may be able to develop alternative forms of medical treatment which could compete with our products and which could be commercialized more rapidly and effectively than our products.
If we fail to comply with government regulations regarding the import and export of products and raw materials, we could be subject to fines, sanctions and penalties that could adversely affect our ability to operate our business.
We import and export products and raw materials from and to several jurisdictions around the world. This process requires us and our commercial partners to operate in a number of jurisdictions with different customs and import/export regulations. The regulations of these countries are subject to change from time to time and we cannot predict the nature, scope or impact of these changes upon our operations. We and our commercial partners are subject to periodic reviews and audits by U.S. and foreign authorities responsible for administering these regulations. To the extent that we or our commercial partners are unable to successfully defend against an audit or review, we may be required to pay assessments, penalties and increased duties, which may, individually or in the aggregate, negatively impact our business, operating results and financial condition.
Risks Related to the Regulatory Review Process
Even after regulatory approval has been obtained regulatory agencies may impose limitations on the indicated uses for which our products may be marketed, subsequently withdraw approval or take other actions against us that would be adverse to our business.
Even though we have obtained marketing approval of EGRIFTATM in the United States, the FDA and regulatory agencies in other countries have the ability to limit the indicated use of a product. Also, the manufacture, marketing and sale of our products will be subject to ongoing and extensive governmental regulation in the country in which we intend to market our products. For example, although we obtained marketing approval of EGRIFTATM for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in the United States, the marketing of EGRIFTATM will be subject to extensive regulatory requirements administered by the FDA, such as adverse event reporting and compliance with marketing and promotional requirements. The FDA has also requested that we comply with certain post-approval requirements in connection with the approval of EGRIFTATM for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy, namely, the development of a single vial formulation of EGRIFTATM (the development of a new presentation of the same formulation), a long-term observational

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safety study using EGRIFTATM; and a Phase 4 clinical trial. Although we have received marketing approval from the FDA of tesamorelin for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy, there can be no guarantee that regulatory agencies in other countries will approve tesamorelin for this treatment in their respective countries.
Our third party manufacturing facilities for EGRIFTATM will also be subject to continuous reviews and periodic inspections and approval of manufacturing modifications by regulatory agencies, including the FDA. The facilities must comply with GMP regulations. The failure to comply with FDA requirements can result in a series of administrative or judicial sanctions or other setbacks, including:
    restrictions on the use of the product, manufacturers or manufacturing processes;
 
    warning letters;
 
    civil or criminal penalties;
 
    fines;
 
    injunctions;
 
    product seizures or detentions;
 
    import or export bans or restrictions;
 
    product recalls and related publicity requirements;
 
    suspension or withdrawal of regulatory approvals;
 
    total or partial suspension of production; and
 
    refusal to approve pending applications for marketing approval of new product candidates or supplements to approved applications.
Addressing any of the foregoing or any additional requirements of the FDA or other regulatory authorities may require significant resources and could impair our ability to successfully commercialize our product candidates.
To date, we do not have the required regulatory approvals to commercialize EGRIFTATM outside of the United States and cannot guarantee that we will obtain such regulatory approvals or that any of our product candidates will be approved for commercialization in any country, including the United States.
The commercialization of EGRIFTATM outside of the United States and our future products first requires the approval of the regulatory agencies in each of the jurisdictions where we intend to sell such products. In order to obtain the required approvals, we must demonstrate, following preclinical and clinical studies, the safety, efficacy and quality of a product.
The rules and regulations relating to the approval of a new drug are complex and stringent. Although we have received marketing approval in the United States from the FDA for EGRIFTATM, there can be no guarantee that regulatory agencies in other territories will approve EGRIFTATM in their respective countries.

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All of our product candidates are subject to preclinical and clinical studies. If the results of such studies are not positive, we may not be in a position to make any filing to obtain the regulatory approval for the product candidate or, even where a product candidate has been filed for approval, we may have to conduct additional clinical trials or testing on such product candidate in an effort to obtain results that further support the safety and efficacy of such product candidate. Such studies are often costly and may also delay a filing or, where additional studies or testing are required after a filing has been made, the approval of a product candidate.
While an application for a new drug is under review by a regulatory agency, it is standard for such regulatory agency to ask questions regarding the application that was submitted. If these questions are not answered quickly and in a satisfactory manner, the marketing approval of the product candidate subject to the review and its commercialization could be delayed or, if the questions are not answered in a satisfactory manner, denied. If EGRIFTATM is not approved by the appropriate regulatory agencies for commercialization outside of the United States, our capacity to generate revenues in the long-term will be impaired and this will have an adverse effect on our financial condition and our operating results.
Obtaining regulatory approval is subject to the discretion of regulatory agencies in each relevant jurisdiction. Therefore, even if we obtain regulatory approval from one agency, or succeed in filing the equivalent of a new drug application, or NDA, in other countries, or have obtained positive results relating to the safety and efficacy of a product candidate, a regulatory agency may not accept the filing or the results contained therein as being conclusive evidence of the safety and efficacy of a product candidate in order to allow us to sell the product candidate in its country. A regulatory agency may require that additional tests on the safety and efficacy of a product candidate be conducted prior to granting approval of such product candidate. These additional tests may delay the approval of such product candidate, can have a material adverse effect on our financial condition and results of operations based on the type of additional tests to be conducted and may not necessarily lead to the approval of the product candidate.
We have only obtained FDA approval for EGRIFTATM and we must complete several preclinical studies and clinical trials for our other product candidates which may not yield positive results and, consequently, could prevent us from obtaining regulatory approval.
If any of our preclinical studies or clinical trials fail to show positive efficacy data or result in adverse patient reactions, we may be required to perform additional preclinical studies or clinical trials, to extend the term of our studies and trials, to increase the number of patients enrolled in a given trial or to undertake ancillary testing. Any of these events could cause an increase in the cost of product development, delay filing of an application for marketing approval or result in the termination of a study or trial and, accordingly, could cause us to cease the development of a product candidate. In addition, the future growth of our business could be negatively impacted since there can be no guarantee that we will be able to develop new compounds, license or purchase compounds or product candidates that will result in marketed products.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or regulate post-approval

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activities and affect our ability to profitably sell EGRIFTATM or any of our other product candidates for which we intend to seek marketing approval.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
In the United States, the Medicare Modernization Act, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and sales price that we receive for EGRIFTATM or any other approved products and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
More recently, in March 2010, U.S. President Obama signed into law the Health Care Reform Law, 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 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 Medicaid drug rebates to states. Further, beginning in 2011, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. We will not know the full effects of the Health Care Reform Law until applicable U.S. federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue to apply the pressure on pharmaceutical pricing. Pressure on pharmaceutical pricing may adversely affect the amount of our royalties in the United States.
Risks Related to Our Intellectual Property
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 or are effectively maintained as trade secrets. We try to protect our intellectual property position by, among other things, filing patent applications related to our

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proprietary technologies, inventions and improvements that are important to the development of our business.
Because the patent position of pharmaceutical companies involves complex legal and factual questions, the issuance, scope, validity, and enforceability of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. 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 product candidates, 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.
Although we have received patents from the United States Patent and Trademark Office, or USPTO, for the treatment of HIV-related lipodystrophy with tesamorelin, there can be no guarantee that, in the other countries where we filed patent applications for the treatment of HIV-related lipodystrophy, we will receive a patent or obtain granted claims of similar breadth to those granted by the USPTO.
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 patents 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. Any such litigation could also divert our research, technical and management personnel from their normal responsibilities.
Our ability to defend ourselves against infringement by third parties of our intellectual property in the United States with respect to tesamorelin for the treatment of HIV-related lipodystrophy

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depends, in part, on our commercial partner’s decision to bring an action against such third party. Under the terms and conditions of our collaboration and licensing agreement with EMD Serono, EMD Serono has the first right to bring an action against a third party for infringing our patent rights with respect to tesamorelin for the treatment of HIV-related lipodystrophy. Any delay in pursuing such action or in advising us that it does not intend to pursue the matter could decrease sales, if any, of tesamorelin for the treatment of HIV-related lipodystrophy and adversely affect our revenues.
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.
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 our product candidates, and more particularly tesamorelin, 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. The fact that we own patents for tesamorelin and for the treatment of HIV-related lipodystrophy does not guarantee that we are not infringing one or more third-party patents and there can be no guarantee that we will not infringe or violate third-party patents and other third-party intellectual property rights in the United States or other jurisdictions.
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

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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 favourable to us, and/or pay damages, including up to treble damages in the United Sates (for example, if found liable of wilful 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 nonexclusive, which could result in our competitors gaining access to the same intellectual property and to compete with us.
We have not been served with any notice alleging that we infringe a third-party patent, but 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. We are aware of third-party patents for the reduction of accumulation of fat tissue in HIV patients and, if a patent infringement suit was brought against us, we believe that we should not be found to infringe any valid claims of these patents. 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.
Other Risks Related to Our Business
We have a history of net losses and we may never achieve high profitability.
We have been reporting losses since our inception (except for the financial years ended November 30, 2010, 2001 and 2000) and, as at November 30, 2010, we had an accumulated deficit of $235,116,000. We do not expect to generate significant recurrent revenues sufficient to cover our overall activities in the immediate future. As a result of the foregoing, we will need to generate significant revenues to achieve profitability.
Our profitability will depend on, among other things, our commercial partners’ ability and willingness to successfully commercialize EGRIFTATM and to obtain regulatory approval for the use of tesamorelin in the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy in Europe, Latin America, Africa and the Middle East. However, there is no guarantee that our commercial partners will succeed in commercializing EGRIFTATM or that our product candidates will ever receive approval for commercialization in any jurisdiction and, accordingly, we may never sustain profitability.
We rely on third-party service providers to conduct our preclinical studies and clinical trials and the failure by any of these third parties to comply with their obligations may delay the studies which could have an adverse effect on our development programs.
We have limited human resources to conduct preclinical studies and clinical trials and must rely on third-party service providers to conduct our studies and trials and carry out certain data gathering and analyses. If our third-party service providers become unavailable for any reason, including as a result of the failure to comply with the rules and regulations governing the conduct of preclinical studies and clinical trials, operational failures such as equipment failures or unplanned facility shutdowns, or damage from any event such as fire, flood, earthquake, business restructuring or insolvency or, if they fail to perform their contractual obligations pursuant to the terms of our agreements with them, such as failing to perform the testing,

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compute the data or complete the reports further to the testing, we may incur delays which may be significant in connection with the planned timing of our trials and studies which could adversely affect the timing of the development program of a product candidate or the filing of an application for marketing approval in a jurisdiction where we rely on third-party service providers to make such filing. In addition, where we rely on such third-party service provider to help in answering any question raised by a regulatory agency during its review of one of our files, the unavailability of such third-party service provider may adversely affect the timing of the review of an application and, could ultimately delay the approval. If the damages to any of our third-party service providers are material, or, for any reason, such providers do not operate in compliance with Good Laboratory Practices, or GLP, or are unable or refuse to perform their contractual obligations, we would need to find alternative third-party service providers.
If we needed to change or select new third-party service providers, the planned working schedule related to preclinical studies and/or clinical trials could be delayed since the number of competent and reliable third-party service providers of preclinical and clinical work in compliance with GLP is limited. In addition, if we needed to change or select new third-party service providers to carry out work in response to a regulatory agency review of one of our applications, there may be delays in responding to such regulatory agency which, in turn, may lead to delays in commercializing a product candidate.
Any selection of new third-party service providers to carry out work related to preclinical studies and clinical trials would be time-consuming and would result in additional delays in receiving data, analysis and reports from such third-party service providers which, in turn, would delay the filing of any new drug application with regulatory agencies for the purposes of obtaining regulatory approval to commercialize our product candidates. Furthermore, such delays could increase our expenditures to develop a product candidate and materially adversely affect our financial condition and operating results.
The conduct of clinical trials requires the enrolment of patients and difficulties in enrolling patients could delay the conduct of our clinical trials or result in their non-completion.
The conduct of clinical trials requires the enrolment of patients. We may have difficulties enrolling patients for the conduct of our future clinical trials as a result of design protocol, the size of the patient population, the eligibility criteria to participate in the clinical trials, the availability of competing therapies, the patient referral practices of physicians and the availability of clinical trial sites. Difficulty in enrolling patients for our clinical trials could result in the cancellation of clinical trials or delays in completing them. Once patients are enrolled in a clinical trial, the occurrence of any adverse drug effects or side effects observed during the trial could result in the clinical trial being cancelled. Any of these events would have material adverse consequences on the timely development of our product candidates, the filing of an NDA, or its equivalent, with regulatory agencies and the commercialization of such product candidates.
We may require additional funding and may not be able to raise the capital necessary to fund all or part of our capital requirements, including to continue and complete the research and development of our product candidates and their commercialization.
We do not generate significant recurrent revenues and may need financing in order to fund all or part of our capital requirements to sustain our growth, to continue research and development of new product candidates, to conduct clinical programs, to develop our marketing and commercial capabilities and to meet our compliance obligations with various rules and regulations to which

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we are subject. In the past, we have been financed through public equity offerings in Canada and private placements of our equity securities and we may need to seek additional equity offerings to raise capital, the size of which cannot be predicted. However, the market conditions or our business performance may 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 equity capital by way of public or private equity offerings in the future. In such a case, we would have to use other means of financing, such as issuing debt instruments or entering into private financing or credit agreements, the terms and conditions of which may not be favorable to us. If adequate funding is not available to us, we may be required to delay, reduce, or eliminate our research and development of new product candidates, our clinical trials or our marketing and commercialization efforts to launch and distribute new products, curtail significant portions of our product development programs that are designed to identify new product candidates and sell or assign rights to our technologies, products or product candidates. In addition, 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.
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 EGRIFTATM and our other product candidates, 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 manufacture and sale of such products may expose us to potential liability, and the industries in which our products are likely to be sold have 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 results of operations.
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 a judgment, in which case our creditors could levy against our assets. We may also be obligated to indemnify our commercial partners and 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.
The development and commercialization of our drugs could expose us to liability claims which could exceed our insurance coverage.
A risk of product liability claims is inherent in the development and commercialization of human therapeutic products. Product liability insurance is very expensive and offers limited protection. A product liability claim against us could potentially be greater than the available coverage and, therefore, have a material adverse effect upon us and our financial condition. Furthermore, a product liability claim could tarnish our reputation, whether or not such claims are covered by insurance or are with or without merit.
We depend on our key personnel to research, develop and bring new products to the market and the loss of key personnel or the inability to attract highly qualified individuals could have a material adverse effect on our business and growth potential.

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The operation of our business requires qualified scientific and management personnel. The loss of scientific personnel or members of management could have a material adverse effect on our business. In addition, our growth is and will continue to be dependent, in part, on our ability to hire and retain the employment of qualified personnel. There can be no guarantee that we will be able to continue to retain our current employees or will be able to attract qualified personnel to achieve our business plan.
We may be unable to identify and complete in-licensing or acquisitions. In-licensing or acquisitions could divert management’s attention and financial resources, may negatively affect our operating results and could cause significant dilution to our shareholders.
In the future, we may engage in selective in-licensing or acquisitions of products or businesses that we believe are complementary to our products or business. There is a risk that we will not be able to identify suitable in-licensing or acquisition candidates available for sale at reasonable prices, complete any in-licensing or acquisition, or successfully integrate any in-licensed or acquired product or business into our operations. We are likely to face competition for in-licensing or acquisition candidates from other parties including those that have substantially greater available resources. In-licensing or acquisitions may involve a number of other risks, including:
    diversion of management’s attention;
 
    disruption to our ongoing business;
 
    failure to retain key acquired personnel;
 
    difficulties in integrating acquired operations, technologies, products or personnel;
 
    unanticipated expenses, events or circumstances;
 
    assumption of disclosed and undisclosed liabilities;
 
    inappropriate valuation of the acquired in-process research and development, or the entire acquired business; and
 
    difficulties in maintaining customer relations.
If we do not successfully address these risks or any other problems encountered in connection with an acquisition, the acquisition could have a material adverse effect on our business, results of operations and financial condition. Inherited liabilities of or other issues with an acquired business could have a material adverse effect on our performance or our business as a whole. In addition, if we proceed with an acquisition, our available cash may be used to complete the transaction, diminishing our liquidity and capital resources, or shares may be issued which could cause significant dilution to our existing shareholders.
We may not achieve our publicly announced milestones on time.
From time to time, we publicly announce the timing of certain events to occur. These statements are forward-looking and are based on the best estimate of management at the time relating to

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the occurrence of such events. However, the actual timing of such events may differ from what has been publicly disclosed. Events such as completion of a clinical program, discovery of a new product candidate, filing of an application to obtain regulatory approval, beginning of commercialization of our products or announcement of additional clinical programs for a product candidate may vary from what is publicly disclosed. These variations may occur as a result of a series of events, including the nature of the results obtained during a clinical trial or during a research phase, problems with a supplier or a commercial partner or any other event having the effect of delaying the publicly announced timeline. Our policy on disclosure of forward-looking information consists of not updating it if the publicly disclosed timeline varies, except as may be required by law. Any variation in the timing of certain events having the effect of postponing such events could have an adverse material effect on our business plan, financial condition or operating results.
The outcome of scientific research is uncertain and our failure to discover new compounds could slow down the growth of our portfolio of products.
We conduct research activities in order to increase our portfolio of product candidates. The outcome of scientific research is uncertain and may prove unsuccessful and, therefore, may not lead to the discovery of new molecules and progression of existing compounds to an advanced development stage. Our inability to develop new compounds or to further develop the existing ones could slow down the growth of our portfolio of products.
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.
Since our initial public offering in Canada, our valuation and share price have had no meaningful relationship to current or historical financial results, asset values, book value or many other criteria based on conventional measures of the value of common shares. The market price of our common shares will fluctuate due to various factors including the risk factors described herein and other facts beyond our control.
In the past, when the market price of a stock has been volatile, shareholders have often instituted securities class action litigation against that company. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. The lawsuit could also divert the time and attention of our management.
Our quarterly operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:
    variations in the level of revenues and royalties received related to our development programs;
 
    variations in the level of expenses related to our development programs;
 
    addition or termination of clinical trials;

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    any intellectual property infringement lawsuit in which we may become involved;
 
    regulatory developments affecting our product candidates;
 
    our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements; and
 
    the achievement and timing of milestone payments under our existing strategic partnership agreements.
If our quarterly operating results fall below the expectations of investors or securities analysts, 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.
We do not intend to pay dividends on our common shares and, consequently, your ability to achieve a return on your 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 do not currently intend to do so for the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. 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 revenues and expenses may fluctuate significantly and any failure to meet financial expectations 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:
    the inability to complete product development in a timely manner that results in a failure or delay in receiving the required regulatory approvals or allowances to commercialize product candidates;
 
    the timing of regulatory submissions and approvals;
 
    the timing and willingness of any current or future collaborators to invest the resources necessary to commercialize the product candidates;
 
    the outcome of any litigation;
 
    changes in foreign currency fluctuations;
 
    the timing of achievement and the receipt of milestone payments from current or future third parties;

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    failure to enter into new or the expiration or termination of current agreements with third parties; and
 
    failure to introduce the product candidates to the market in a manner that generates anticipated revenues.
We may be adversely affected by currency fluctuations.
A substantial portion of our revenue is earned in U.S. dollars, but a substantial portion of our operating expenses are incurred in Canadian dollars. Fluctuations in the exchange rate between the U.S. dollar and other currencies, such as the Canadian dollar, may have a material adverse effect on our business, financial condition and operating results. We do not currently engage in transactional hedging schemes but we do attempt to hedge or mitigate the risk of currency fluctuations by actively monitoring and managing our foreign currency holdings relative to our foreign currency expenses.
Our articles and certain Canadian laws could delay or deter a change of control.
On February 10, 2010, we entered into a shareholder rights plan agreement. In the event of certain change of control transactions, the plan entitles a rights holder, other than the person or group acquiring control, to subscribe to our common shares at a discount of 50 percent to the market price at that time, subject to certain exceptions.
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.
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.
Further information on Theratechnologies
Further information on Theratechnologies, including the Company’s Annual Information Form, is available on the SEDAR site at www.sedar.com.

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ex-99.3
Table of Contents

Exhibit 99.3
 
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 2010 AND 2009
 


F-1


Table of Contents

(KPMG LETTERHEAD)
 
 
AUDITORS’ REPORT TO THE SHAREHOLDERS
 
We have audited the consolidated statements of financial position of Theratechnologies Inc. as at November 30, 2010 and 2009 and December 1, 2008, and the consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for the years ended November 30, 2010 and 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
 
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2010 and 2009 and December 1, 2008, and its financial performance and its cash flows for the years ended November 30, 2010 and 2009 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
 
(-s- KPMG LLP)
 
Chartered Accountants
 
Montreal, Canada
 
February 8, 2011

F-2


 

THERATECHNOLOGIES INC.
 
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2010 AND 2009 AND AS AT DECEMBER 1, 2008
 
 
         
Financial Statements
       
    F-4  
    F-5  
    F-6  
    F-7  
    F-8  


F-3


Table of Contents

THERATECHNOLOGIES INC.
 
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT NOVEMBER 30, 2010 AND 2009 AND DECEMBER 1, 2008
 
­ ­
 
                             
        NOVEMBER 30,
    NOVEMBER 30,
    DECEMBER 1,
 
    NOTE   2010     2009     2008  
        $     $     $  
        (in thousands of Canadian dollars)  
 
Assets
                           
Current assets:
                           
Cash
        26,649       1,519       133  
Bonds
  8     1,860       10,036       10,955  
Trade and other receivables
  9     161       375       610  
Tax credits and grants receivable
  10     332       1,333       1,451  
Inventories
  11     4,317       2,225        
Prepaid expenses
        1,231       630       739  
                             
Total current assets
        34,550       16,118       13,888  
                             
Non-current assets:
                           
Bonds
  8     36,041       51,807       35,249  
Property and equipment
  12     1,060       1,229       1,299  
Other assets
                    2,776  
                             
Total non-current assets
        37,101       53,036       39,324  
                             
Total assets
        71,651       69,154       53,212  
                             
Liabilities
                           
Current liabilities:
                           
Accounts payable and accrued liabilities
  13     4,977       5,568       6,865  
Current portion of deferred revenue
  4     6,847       6,847        
                             
Total current liabilities
        11,824       12,415       6,865  
                             
Non-current liabilities:
                           
Other liabilities
  14     325              
Deferred revenue
  4     6,846       13,691        
                             
Total non-current liabilities
        7,171       13,691        
                             
Total liabilities
        18,995       26,106       6,865  
                             
Equity
                           
Share capital
  15     279,398       279,169       269,219  
Contributed surplus
        7,808       6,757       5,760  
Deficit
        (235,116 )     (244,160 )     (229,004 )
Accumulated other comprehensive income
        566       1,282       372  
                             
Total equity
        52,656       43,048       46,347  
                             
Contingent liability
  18                        
Commitments
  23                        
Subsequent events
  26                        
                             
Total liabilities and equity
        71,651       69,154       53,212  
                             
 
     
On behalf of the Board,
   

(signed) Paul Pommier
 

(signed) Jean-Denis Talon
Director   Director
 
See accompanying notes to the consolidated financial statements.


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THERATECHNOLOGIES INC.
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEARS ENDED NOVEMBER 30, 2010 AND 2009
 
­ ­
 
                     
        NOVEMBER 30,
    NOVEMBER 30,
 
    NOTE   2010     2009  
        $     $  
        (in thousands of Canadian dollars, except per share amounts)  
 
Revenue:
                   
Research services:
                   
Milestone payments
  4     25,000       10,884  
Upfront payments and initial technology access fees
  4     6,846       6,560  
Royalties and license fees
        22       24  
                     
Total revenue
        31,868       17,468  
                     
Cost of sales
        469        
Research and development expenses, net of tax credits of $934 (2009 – $1,795)
  10     14,064       20,810  
Selling and market development expenses
  6     2,670       6,862  
General and administrative expenses
        8,002       6,543  
                     
Total operating expenses
        25,205       34,215  
                     
Results from operating activities
        6,663       (16,747 )
                     
Finance income
  7     1,888       2,252  
Finance costs
  7     493       (661 )
                     
Total net financial income
        2,381       1,591  
                     
Net profit (loss) before income taxes
        9,044       (15,156 )
                     
Income tax expense
  16     114        
                     
Net profit (loss)
        8,930       (15,156 )
                     
Other comprehensive income (loss), net of tax:
                   
Net change in fair value available-for-sale financial assets, net of tax
        (390 )     1,039  
Net change in fair value available-for-sale financial assets transferred to net profit (loss), net of tax
        (326 )     (129 )
                     
          (716 )     910  
                     
Total comprehensive income (loss) for the year
        8,214       (14,246 )
                     
Basic and diluted earnings (loss) per share
  15     0.15       (0.25 )
                     
 
See accompanying notes to the consolidated financial statements.


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THERATECHNOLOGIES INC.
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEARS ENDED NOVEMBER 30, 2010 AND 2009
 
­ ­
 
                                                     
                          UNREALIZED GAINS
             
                          OR LOSSES ON
             
                          AVAILABLE-FOR-SALE
             
        SHARE CAPITAL     CONTRIBUTED
    FINANCIAL
             
    NOTE   NUMBER     DOLLARS     SURPLUS     ASSETS (i)     DEFICIT     TOTAL  
              $     $     $     $     $  
        (in thousands of Canadian dollars)  
 
Balance as at December 1, 2008
        58,215,090       269,219       5,760       372       (229,004 )     46,347  
                                                     
Total comprehensive income (loss) for the year:
                                                   
Net loss
                                (15,156 )     (15,156 )
Other comprehensive income (loss):
                                                   
Net change in fair value of available-for-sale financial assets, net of tax
                          1,039             1,039  
Net change in fair value of available-for-sale financial assets transferred to net profit (loss), net of tax
                          (129 )           (129 )
                                                     
Total comprehensive income (loss) for the year
                          910       (15,156 )     (14,246 )
                                                     
Transactions with owners, recorded directly in equity:
                                                   
Issue of common shares
  15(i)     2,214,303       9,950                         9,950  
Share-based compensation for stock option plan
  15(iv)                 997                   997  
                                                     
Total contributions by owners
        2,214,303       9,950       997                   10,947  
                                                     
Balance as at November 30, 2009
        60,429,393       279,169       6,757       1,282       (244,160 )     43,048  
                                                     
Total comprehensive income (loss) for the year:
                                                   
Net profit
                                8,930       8,930  
Other comprehensive income (loss):
                                                   
Net change in fair value of available-for-sale financial assets, net of tax
                          (390 )           (390 )
Net change in fair value of available-for-sale financial assets transferred to net profit (loss), net of tax
                          (326 )           (326 )
                                                     
Total comprehensive income (loss) for the year
                          (716 )     8,930       8,214  
                                                     
Transactions with owners, recorded directly in equity:
                                                   
Issue of common shares
  15(i)     2,880       15                         15  
Income tax related to share issue costs
                                114       114  
Share-based compensation plan:
                                                   
Share-based compensation for stock option plan
  15(iv)                 1,133                   1,133  
Exercise of stock options:
                                                   
Monetary consideration
  15(iv)     80,491       132                         132  
Attributed value
  15(iv)           82       (82 )                  
                                                     
Total contributions by owners
        83,371       229       1,051             114       1,394  
                                                     
Balance as at November 30, 2010
        60,512,764       279,398       7,808       566       (235,116 )     52,656  
                                                     
 
(i) Accumulated other comprehensive income.
 
See accompanying notes to the consolidated financial statements.


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THERATECHNOLOGIES INC.
 
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 2010 AND 2009
 
 
                     
        NOVEMBER 30,
    NOVEMBER 30,
 
    NOTE   2010     2009  
        $     $  
        (in thousands of Canadian dollars)  
 
Operating activities:
                   
Net profit (loss)
        8,930       (15,156 )
Adjustments for:
                   
Depreciation of property and equipment
  12     466       612  
Share-based compensation
        1,133       997  
Income tax expense
        114        
Write-down of inventories
  11     192        
Lease inducements and amortization
  17     325        
                     
Operating activities before changes in operating assets and liabilities
        11,160       (13,547 )
Change in accrued interest income on bonds
        728       (923 )
Change in trade and other receivables
        214       235  
Change in tax credits and grants receivable
        1,001       118  
Change in inventories
        (2,284 )     (2,225 )
Change in prepaid expenses
        (601 )     109  
Change in other assets
              2,776  
Change in accounts payable and accrued liabilities
        (473 )     (1,424 )
Change in deferred revenue
        (6,845 )     20,538  
                     
          (8,260 )     19,204  
                     
Cash flows from operating activities
        2,900       5,657  
Financing activities:
                   
Proceeds from issue of share capital
        15       9,950  
Proceeds from exercise of stock options
  15     132        
Share issue costs
              (8 )
                     
Cash flows from financing activities
        147       9,942  
Investing activities:
                   
Acquisition of property and equipment
  12     (415 )     (407 )
Proceeds from sale of bonds
        22,498       15,305  
Acquisition of bonds
              (29,111 )
                     
Cash flows from (used in) investing activities
        22,083       (14,213 )
                     
Net change in cash
        25,130       1,386  
Cash as at December 1
        1,519       133  
                     
Cash as at November 30
        26,649       1,519  
                     
­ ­
 
See note 19 for supplemental cash flow information.
 
See accompanying notes to the consolidated financial statements.


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THERATECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2010 AND 2009 AND AS AT DECEMBER 1, 2008
(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
 
1.   Reporting Entity:
 
Theratechnologies Inc. is a specialty pharmaceutical company that discovers and develops innovative therapeutic peptide products with an emphasis on growth hormone releasing factor peptides. Theratechnologies Inc. is leveraging its expertise in the field of metabolism to discover and develop products in specialty markets. Its commercialization strategy is to retain all or a significant portion of the commercial rights to its products. Its first product, EGRIFTA® (tesamorelin for injection), was approved by the United States Food and Drug Administration (“FDA”) in November 2010. To date, EGRIFTA® is the only approved therapy for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy.
 
The consolidated financial statements include the accounts of Theratechnologies Inc. and its wholly-owned subsidiaries (together referred to as the “Company” and individually as “the subsidiaries of the Company”).
 
Theratechnologies Inc. is incorporated under Part 1A of the Québec Companies Act and is domiciled in Quebec, Canada. The Company is located at 2310 boul. Alfred-Nobel, Montreal, Quebec, H4S 2B4.
 
2.   Basis of Preparation:
 
 
  (a)  Statement of Compliance:
The consolidated financial statements of the Company have been prepared in accordance with IFRSs as issued by the International Accounting Standards Board (“IASB”). These are the Company’s first consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRSs”). The Company has applied IFRS 1, First-time Adoption of International Financial Reporting Standards, using December 1, 2008 as the date of transition to IFRSs.
 
An explanation of how the transition to IFRSs has affected the reported financial position, financial performance and cash flows of the Company is provided in note 27.
 
The consolidated financial statements were authorized for issue by the Board of Directors on February 8, 2011.
 
  (b)  Basis of Measurement:
The Company’s consolidated financial statements have been prepared on a going concern and historical cost basis, except for available-for-sale financial assets which are measured at fair value.
 
The methods used to measure fair value are discussed further in note 22.
 
  (c)  Functional and Presentation Currency:
These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand.
 
  (d)  Use of Estimates and Judgements:
The preparation of the Company’s consolidated financial statements in conformity with IFRSs requires management to 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.
 
Information about critical judgements in applying accounting policies and assumption and estimation uncertainties that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:
  n   Note 4 – Revenue and deferred revenue;
 
  n   Note 15 (iv) – Stock option plan;


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THERATECHNOLOGIES INC.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
  n   Note 16 – Income taxes;
 
  n   Note 18 – Contingent liability.
 
Other areas of judgement and uncertainty relate to the estimation of accruals for clinical trial expenses, the recoverability of inventories, the measurement of the amount and assessment of the recoverability of tax credits and grants receivable and capitalization of development expenditures.
 
Reported amounts and note disclosure reflect the overall economic conditions that are most likely to occur and anticipated measures management intends to take. Actual results could differ from those estimates.
 
The above estimates and assumptions are reviewed regularly. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
 
3.   Significant Accounting Policies:
 
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing the opening IFRS statement of financial position at December 1, 2008, the date of transition to IFRSs.
 
The accounting policies have been applied consistently by the subsidiaries of the Company.
 
  (a)  Basis of Consolidation:
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Subsidiaries are entities controlled by the Company. Control is present where the Company has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are exercisable currently are taken into consideration. The accounting policies of subsidiaries are changed when necessary to align them with the policies adopted by the Company.
 
Reciprocal balances and transactions, revenues and expenses resulting from transactions between subsidiaries and with the Company are eliminated in preparing the consolidated financial statements.
 
  (b)  Foreign Currency:
Transactions in foreign currencies are translated to the respective functional currencies of the subsidiaries of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period.
 
Foreign currency differences arising on translation are recognized in net profit (loss), except for differences arising on the translation of available-for-sale equity instruments, which are recognized in other comprehensive income. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date on which the fair value was determined. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
 
  (c)  Revenue Recognition:
Collaboration agreements that include multiple deliverables are considered to be multi-element arrangements. Under this type of arrangement, the identification of separate units of accounting is required and revenue is allocated among the separate units based on their relative fair values.


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THERATECHNOLOGIES INC.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Payments received under the collaboration agreement may include upfront payments, milestone payments, research services, royalties and license fees. Revenues for each unit of accounting are recorded as described below:
 
               (i)  Sale of Goods:
Revenues from the sale of goods are recognized when the Company has transferred to the buyer the significant risks and rewards of ownership of the goods, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.
 
               (ii)  Royalties and License Fees:
Royalties and license fees are recognized when conditions and events under the license agreement have occurred and collectibility is reasonably assured.
 
               (iii)  Research Services:
Revenues from research contracts are recognized when services to be provided are rendered and all conditions under the terms of the underlying agreement are met.
 
  (a)  Upfront Payments and Initial Technology Access Fees:
Upfront payments and initial technology access fees are deferred and recognized as revenue on a systematic basis over the period during which the related products or services are delivered and all obligations are performed.
 
  (b)  Milestone Payments:
Revenues subject to the achievement of milestones are recognized only when the specified events have occurred and collectibility is reasonably assured.
 
  (d)  Cost of Sales:
Cost of sales represents the cost of goods sold and includes the cost of raw materials, supplies, direct overhead charges, unallocated indirect costs related to production as well as write-down of inventories. Other direct costs, such as manufacturing start-up costs between validation and the achievement of normal production, are expensed as incurred.
 
  (e)  Employee Benefits:
 
              Salaries and Short-Term Employee Benefits:
Salaries and short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term profit-sharing or cash bonus plans if the Company has a legal or constructive obligation to pay an amount as a result of past services rendered by an employee and the obligation can be estimated reliably.
 
              Post-Employment Benefits:
Post-employment benefits include a defined contribution plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense when due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available. The Company’s defined contribution plan comprises the registered retirement savings plan, the Quebec Pension Plan and unemployment insurance.
 
              Termination Benefits:
Termination benefits are recognized as an expense when the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.


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Table of Contents

THERATECHNOLOGIES INC.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
  (f)  Finance Income and Finance Costs:
Finance income comprises interest income on available-for-sale financial assets and gains (losses) on the disposal of available-for-sale financial assets. Interest income is recognized as it accrues in profit (loss), using the effective interest method.
 
Finance costs are comprised of bank charges, impairment losses on financial assets recognized in profit (loss) and of foreign currency gains and losses which are reported on a net basis.
 
  (g)  Inventories:
Inventories are presented at the lower of cost, determined using the first-in first-out method, or net realizable value. Inventory costs include the purchase price and other costs directly related to the acquisition of materials, and other costs incurred in bringing the inventories to their present location and condition. Inventory costs also include the costs directly related to the conversion of materials to finished goods, such as direct labour, and a systematic allocation of fixed and variable production overhead, including manufacturing depreciation expense. The allocation of fixed production overheads to the cost of inventories is based on the normal capacity of the production facilities. Normal capacity is the average production expected to be achieved over a number of periods under normal circumstances.
 
Net realizable value is the estimated selling price in the Company’s ordinary course of business, less the estimated costs of completion and selling expenses.
 
  (h)  Property and Equipment:
 
              Recognition and Measurement:
Items of property and equipment are recognized at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset and the costs of dismantling and removing the item and restoring the site on which it is located, if any.
 
When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.
 
Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment, and are recognized in net profit (loss).
 
              Subsequent Costs:
The cost of replacing a part of an item of property and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property and equipment are recognized in profit (loss) as incurred.
 
              Depreciation:
The estimated useful lives and the methods of depreciation for the current and comparative periods are as follows:
 
         
ASSET
  METHOD   RATE/PERIOD
 
Computer equipment
  Declining balance   50%
Laboratory equipment
  Declining balance   20%
    and straight-line   5 years
Office furniture and equipment
  Declining balance   20%
Leasehold improvements
  Straight-line   Lower of term of lease
or economic life
 
This most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.


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Table of Contents

THERATECHNOLOGIES INC.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting period-end and adjusted if appropriate.
 
  (i)  Intangible Assets:
 
              Research and Development:
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is expensed as incurred.
 
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. These criteria are usually met when a regulatory filing has been made in a major market and approval is considered highly probable. The expenditure capitalized includes the cost of materials, direct labour, and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditures are expensed as incurred. Capitalized development expenditures are measured at cost less accumulated amortization and accumulated impairment losses.
 
During the years ended November 30, 2010 and 2009 and as at December 1, 2008, no development expenditures were capitalized.
 
  (j)  Financial Instruments:
The Company’s financial instruments are classified into one of three categories: loans and receivables, available-for-sale financial assets and other financial liabilities. Loans and receivables and other financial liabilities are measured at amortized cost.
 
The Company has classified its bonds as available-for-sale financial assets. The Company has classified cash and trade and other receivables as loans and receivables, and accounts payable and accrued liabilities as other financial liabilities.
 
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and that are not classified in any of the other categories. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognized in other comprehensive income and presented within equity. When an investment is derecognized, the cumulative gain or loss in other comprehensive income is transferred to profit (loss).
 
  (k)  Other Assets:
Other assets consist of prepaid expenses for research supplies that are not expected to be used within one year from the date of the consolidated statement of financial position.
 
Research supplies are purchased in advance, in accordance with specific regulatory requirements, to be used in connection with the Company’s clinical trials.
 
  (l)  Leases:
Operating lease payments are recognized in net profit (loss) on a straight-line basis over the term of the lease.
 
Lease inducements arising from leasehold improvement allowances and rent-free periods form an integral part of the total lease cost and are deferred and recognized in net profit (loss) over the term of the lease on a straight-line basis.


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THERATECHNOLOGIES INC.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
  (m)  Impairment:
 
              Financial Assets:
A financial asset not carried at fair value through profit or loss is assessed at each consolidated financial statement reporting date to determine whether there is objective evidence that it is impaired. The Company considers that a financial asset is impaired if objective evidence indicates that one or more loss events had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
 
An impairment test is performed, on an individual basis, for each material financial asset. Other individually non-material financial assets are tested as groups of financial assets with similar risk characteristics. Impairment losses are recognized in net profit (loss).
 
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in net profit (loss) and reflected in an allowance account against the respective financial asset. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through net profit (loss).
 
Impairment losses on available-for-sale investment securities are recognized by transferring the cumulative loss that has been recognized in other comprehensive income, and presented in unrealized gains/losses on available-for-sale financial assets in equity, to net profit (loss). The cumulative loss that is removed from other comprehensive income and recognized in net profit (loss) is the difference between the acquisition cost, net of any principal repayment and amortization, and the current fair value, less any impairment loss previously recognized in net profit (loss). Changes in impairment provisions attributable to time value are reflected as a separate component of interest income.
 
If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized in net profit (loss), then the impairment loss is reversed, with the amount of the reversal recognized in net profit (loss). However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income.
 
              Non-Financial Assets:
The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If such an indication exists, the recoverable amount is estimated.
 
The recoverable amount of an asset or a cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of cash inflows from other assets or groups of assets (“cash-generating unit”). Impairment losses recognized in prior periods are determined at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An asset’s carrying amount, increased through reversal of an impairment loss, must not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.


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THERATECHNOLOGIES INC.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
  (n)  Provisions:
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are assessed by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount on provisions is recognized in finance costs.
 
              Onerous Contracts:
A provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognizes any impairment loss on the assets associated with that contract. There were no onerous contracts as at November 30, 2010 and 2009 and December 1, 2008.
 
              Site Restoration:
Where there is a legal or constructive obligation to restore leased premises to good condition, except for normal aging on expiry or early termination of the lease, the resulting costs are provisioned up to the discounted value of estimated future costs and increase the carrying amount of the corresponding item of property and equipment. The Company amortizes the cost of restoring leased premises and recognizes an unwinding of discount expense on the liability related to the term of the lease.
 
              Contingent Liability:
A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company; or a present obligation that arises from past events (and therefore exists), but is not recognized because it is not probable that a transfer or use of assets, provision of services or any other transfer of economic benefits will be required to settle the obligation, or the amount of the obligation cannot be estimated reliably.
 
  (o)  Income Taxes:
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net profit (loss) except to the extent that they relate to items recognized directly in other comprehensive income or in equity.
 
              Current Tax:
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. The Company establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
 
              Deferred Tax:
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
 
A deferred tax liability is generally recognized for all taxable temporary differences.
 
A deferred tax asset is recognized for unused tax losses and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.


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THERATECHNOLOGIES INC.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
  (p)  Share-Based Compensation:
The Company records share-based compensation related to employee stock options granted using the fair value based method estimated using the Black-Scholes model. Under this method, compensation cost is measured at fair value at the date of grant and expensed, as employee benefits, over the period in which employees unconditionally become entitled to the award. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.
 
Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Company.
 
As permitted by IFRS 1, the Company elected not to restate options that were granted before November 7, 2002 and those granted after November 7, 2002 that were fully vested prior to the date of transition to IFRS.
 
  (q)  Government Grants:
Government grants consisting of grants and investment tax credits, are recorded as a reduction of the related expense or cost of the asset acquired. Government grants are recognized when there is reasonable assurance that the Company has met the requirements of the approved grant program and there is reasonable assurance that the grant will be received.
 
  (r)  Share Capital:
              Common Shares:
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects.
 
  (s)  Earnings Per Share:
The Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by dividing the net profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period, adjusted for own shares held, if applicable. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding, adjusted for own shares held if applicable, for the effects of all dilutive potential common shares, which consist of the stock options granted to employees.
 
  (t)  New Standards and Interpretations not yet Applied:
Certain pronouncements were issued by the IASB or International Financial Reporting Interpretation Committee that are mandatory for annual periods beginning on or after January 1, 2010 or later periods. Many of these updates are not applicable or are inconsequential to the Company and have been excluded from the discussion below. The remaining pronouncements are being assessed to determine their impact on the Company’s results and financial position:
 
              Annual Improvements to IFRS:
The IASB’s improvements to IFRS published in April 2009 contain fifteen amendments to twelve standards that result in accounting changes for presentation, recognition or measurement purposes largely for annual periods beginning on or after January 1, 2010, with early adoption permitted. These amendments were considered by the Company and deemed to be not applicable to the Company other than for the amendment to IAS 17 – Leases relating to leases which include both land and buildings elements. In this case, the Company early adopted this amendment.
 
The IASB’s improvements to IFRS contain seven amendments that result in accounting changes for presentation, recognition or measurement purposes. The most significant features of the IASB’s annual


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Table of Contents

THERATECHNOLOGIES INC.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
improvements project published in May 2010 are included under the specific revisions to standards discussed below.
 
              (i)  IFRS 3:
                     Revision to IFRS 3, Business Combinations:
Effective for annual periods beginning on or after July 1, 2010 with earlier adoption permitted.
 
Clarification on the following areas:
  n   the choice of measuring non-controlling interests at fair value or at the proportionate share of the acquiree’s net assets applies only to instruments that represent present ownership interests and entitle their holders to a proportionate share of the net assets in the event of liquidation. All other components of non-controlling interest are measured at fair value unless another measurement basis is required by IFRS.
 
  n   application guidance relating to the accounting for share-based payments in IFRS 3 applies to all share-based payment transactions that are part of a business combination, including unreplaced awards (i.e., unexpired awards over the acquiree shares that remain outstanding rather than being replaced by the acquirer) and voluntarily replaced share-based payment awards.
 
              (ii)  IFRS 7:
                     Amendment to IFRS 7, Financial Instruments: Disclosures:
Effective for annual periods beginning on or after January 1, 2011, with earlier adoption permitted.
 
Multiple clarifications related to the disclosure of financial instruments and in particular in regards to transfers of financial assets.
 
              (iii)  IAS 1:
                     Amendment to IAS 1, Presentation of Financial Statements:
Effective for annual periods beginning on or after January 1, 2011, with earlier adoption permitted.
 
Entities may present the analysis of the components of other comprehensive income either in the statement of changes in equity or within the notes to the financial statements.
 
              (iv)  IAS 27:
                     Amendment to IAS 27, Consolidated and Separate Financial Statements:
Effective for annual periods beginning on or after January 1, 2011, with earlier adoption permitted.
 
The 2008 revisions to this standard resulted in consequential amendments to IAS 21, The Effects of Changes in Foreign Exchange Rates, IAS 28, Investments in Associates, and IAS 31, Interests in Joint Ventures. IAS 27 now provides that these amendments are to be applied prospectively.
 
              (v)  IAS 34:
                     Amendment to IAS 34, Interim Financial Reporting:
Effective for annual periods beginning on or after January 1, 2011, with earlier adoption permitted.
 
The amendments place greater emphasis on the disclosure principles for interim financial reporting involving significant events and transactions, including changes to fair value measurements and the need to update relevant information from the most recent annual report.
 
New or revised standards and interpretations:
In addition, the following new or revised standards and interpretations have been issued but are not yet applicable to the Company:
 
              (i)  IAS 24:
                     Amendments to IAS 24, Related Party Disclosures:
Effective for annual periods beginning on or after January 1, 2011, with earlier adoption permitted.


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Table of Contents

THERATECHNOLOGIES INC.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
There are limited differences in the definition of what constitutes a related party; however, the amendment requires more detailed disclosures regarding commitments.
 
              (ii)  IFRS 8:
                     IFRS 8, Operating Segments:
Effective for annual periods beginning on or after January 1, 2010.
 
Requires purchase information about segment assets.
 
              (iii)  IFRS 9:
                     New standard IFRS 9, Financial Instruments:
Effective for annual periods beginning on or after January 1, 2013, with earlier adoption permitted.
 
As part of the project to replace IAS 39, Financial Instruments: Recognition and Measurement, this standard retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets. More specifically, the standard:
  n   deals with classification and measurement of financial assets
 
  n   establishes two primary measurement categories for financial assets: amortized cost and fair value
 
  n   classification depends on entity’s business model and the contractual cash flow characteristics of the financial asset
 
  n   eliminates the existing categories: held to maturity, available for sale, and loans and receivables.
 
Certain changes were also made regarding the fair value option for financial liabilities and accounting for certain derivatives linked to unquoted equity instruments.
 
4.   Revenue and Deferred Revenue:
 
On October 28, 2008, the Company entered into a collaboration and licensing agreement with EMD Serono Inc. (“EMD Serono”), an affiliate of the Group Merck KGaA, of Darmstadt, Germany, regarding the exclusive commercialization rights of tesamorelin in the United States for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy (the “Initial Product”). The Company retains all tesamorelin commercialization rights outside of the United States.
 
Under the terms of the agreement, the Company is responsible for the development of the Initial Product up to obtaining marketing approval in the United States, which was obtained on November 10, 2010. The Company is also responsible for product production and for developing a new formulation of the Initial Product. EMD Serono is responsible for conducting product commercialization activities.
 
At the closing of the agreement on December 15, 2008, the Company received US$30,000 (C$36,951), which includes an initial payment of US$22,000 (C$27,097) and US$8,000 (C$9,854) as a subscription for common shares in the Company by Merck KGaA at a price of US$3.67 (C$4.52) per share. The Company may receive up to US$215,000, which amount includes the initial payment of US$22,000, the equity investment of US$8,000, as well as payments based on the achievement of certain development, regulatory and sales milestones. The Company will also be entitled to receive increasing royalties on annual net sales of tesamorelin in the United States, if applicable.
 
The initial payment of $27,097 has been deferred and is being amortized on a straight-line basis over the estimated period for developing a new formulation of the Initial Product. This period may be modified in the future based on additional information that may be received by the Company. At November 30, 2010, an amount of $6,846 (2009 – $6,560) was recognized as revenue. As at November 30, 2010, the deferred revenue related to this transaction amounted to $13,692 (2009 – $20,537).


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Table of Contents

THERATECHNOLOGIES INC.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
 
 
On August 12, 2009, the FDA accepted the New Drug Application (“NDA”) made by the Company for tesamorelin. Under the terms of the Company’s collaboration and licensing agreement with EMD Serono, the acceptance of the tesamorelin NDA resulted in a milestone payment of US$10,000 (C$10,884).
 
On November 10, 2010, the FDA approved EGRIFTA® as the first approved treatment in the United States for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy. By virtue of the collaboration and licensing agreement entered into in 2008 with EMD Serono, the Company received a milestone payment of US$25,000 (C$25,000) associated with the FDA-approval of EGRIFTA®. This payment was received by the Company on November 30, 2010.
 
The Company may conduct research and development activities for additional indications. Under the collaboration and licensing agreement, EMD Serono will also have the option to commercialize additional indications for tesamorelin in the United States. If it exercises this option, EMD Serono will pay half of the development costs related to such additional indications. In such cases, the Company will also have the right, subject to an agreement with EMD Serono, to participate in promoting these additional indications.
 
5.   Personnel Expenses:
 
 
 
                         
          NOVEMBER 30,
    NOVEMBER 30,
 
    NOTE     2010     2009  
          $     $  
 
Salaries and short-term employee benefits
            11,577       10,779  
Post-employment benefits
            579       542  
Termination benefits
            20       275  
Share-based compensation
    15 (iv)     1,133       997  
                         
Total personnel expenses
            13,309       12,593