Exhibit 99.5




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##### 



(For the years ended November 30, in thousands of Canadian dollars)
    
    2009
    
    
    2008
    
    
    2007Revenues
    
    $
    19,720
    
    
    $
    2,641
    
    
    $
    3,134R&D expenditures
    
    $
    22,226
    
    
    $
    35,326
    
    
    $
    31,866Liquidities *
    
    $
    65,028
    
    
    $
    48,121
    
    
    $
    61,786Burn rate **
    
    $
    26,722
    ***
    
    $
    41,592
    ****
    
    $
    34,954
    ****
 *
    
    Includes cash, bonds and tax credits receivable.**
    
    Represented by cash flows from operating activities and excluding changes in
operating assets and liabilities.***

    
    Adjusted burn rate (see the Non-GAAP Measures section in the Managements
Discussion and Analysis)****
    
    Information restated following the adoption of the Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3064, Goodwill and Intangible Assets.




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Q
    
    What is your assessment of 2009?A
    
    After several years of evaluating tesamorelin in the clinic, in 2009 we advanced in the
regulatory review process. This transition is another positive step that brings us closer to our
ultimate objective, which is to obtain approval for tesamorelin for the treatment of excess
abdominal fat in HIV-infected patients with lipodystrophy. It was therefore with great enthusiasm
that we accomplished the major regulatory task of finalizing the New Drug Application (NDA) in
the early months of the year 2009, which was submitted to the U.S. Food and Drug Administration on
May 29th. The application was accepted for review in August, which triggered a US$10
million milestone payment under our Collaboration and Licensing Agreement with EMD Serono.Q
    
    Can you tell us more about what this regulatory work entailed?A
    
    In fact, the regulatory work related to the submission of our NDA to the FDA started well in
advance of 2009. Even before receiving the results of the confirmatory Phase 3 study, we
established multidisciplinary teams dedicated to preparing our regulatory filing. The assembly of
such a file totaling many thousand pages and containing all of the manufacturing, preclinical and
clinical data for tesamorelin was a colossal task requiring skill, determination and attention to
detail.The fact that our filing was accepted for review by the FDA speaks highly of the quality of the
work and I would like to thank all Theratechnologies employees who participated in its preparation
in one way or another. However, the work doesnt stop there! With our application in the process of
being evaluated, our scientific and regulatory teams are currently following up with the FDA to
advance the file and are actively preparing themselves to participate in a meeting before the
Endocrinologic and Metabolic Drugs Advisory Committee of the FDA.Q
    
    What is the role of this Advisory Committee?A
    
    The main role of the Advisory Committee is to provide the FDA with independent advice from
medical experts and other interested parties on the use of tesamorelin for treating excess
abdominal fat in HIV-infected patients with lipodystrophy. In cases where a first-in-class type of
treatment like tesamorelin is evaluated for human use, recourse to an Advisory Committee by the FDA
before taking a decision is common practice and an integral part of the review process. Personally,
I look positively upon the FDA seeking outside advice and I know that our team members, who have
been preparing themselves for several months, are looking forward to this public meeting with
confidence. I must, however, add that even in cases where advisory committees address questions
posed by the regulatory authorities, the final decision on a product approval still rests solely
with the FDA.




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##### 



Q
    
    How is the relationship between Theratechnologies and EMD Serono?A
    
    Excellent! I think its fair to say that our teams have developed a wonderful collaboration
founded upon the common objective of commercializing tesamorelin in the United States. To
facilitate interaction with our new partner, we created an alliance management position in 2009,
which coordinates all communication between Theratechnologies and EMD Serono. So far, around ten
intercompany committees have been formed and are working on various projects. Overseen by the
person managing this alliance, the teamwork in the committees is both efficient and productive.Q
    
    Virtually all of the Companys energy in recent years has been focused on tesamorelin in the United
States. Once its approved by the FDA, whats next?A
    
    The approval of tesamorelin in the United States has been our primary objective since 2005 when
we made the strategic decision to focus our efforts on HIV-associated lipodystrophy. Even though
the United States is the market offering the most potential for this medical condition, other
markets could be particularly interesting, notably Brazil, Europe and even here in Canada. Today,
the development of additional markets constitutes the second objective of our business plan, aimed
at securing Theratechnologies growth in the years to come. Following an approval for tesamorelin
to treat HIV-associated lipodystrophy, we also intend to identify clinical programs to evaluate
tesamorelin for the treatment of other diseases. Our growth strategy for the next few years is
therefore firmly fixed on tesamorelin sales of the drug in different markets, the development of
additional clinical programs, and sound product life-cycle management.Q
    
    Whats your strategy for developing HIV-associated lipodystrophy markets outside the United States?A
    
    Our strategy is to enter into agreements with strong partners in markets that are attractive and
where the investment on our part is limited. As such, we want to concentrate on markets where we
will be able to use the work already done for the NDA in the United States and on agreements where
the partners are responsible for most of the required investment. In the context where we already
have a solid agreement in the U.S., we now wish to conclude agreements elsewhere that maximize the
potential for additional royalties.Q
    
    What are your plans for Canada?A
    
    For Canada, we have two options: find a partner, as we hope to do in other markets, or hold on to
the Canadian commercial rights. We are in a position to consider the second option because we know
the Canadian market well; several of our managers have in-depth experience with the launch of
products in our home territory. The best approach has not yet been determined; its a strategic
decision that we will make by evaluating the investment and returns for each approach as well as
the long-term impact on Theratechnologies future.




---



##### 



Q
    
    How will you finance these growth projects?A
    
    We ended the financial year with $65 million in available funds, which provides us with a lot of
financial flexibility. Whats more, under our agreement with EMD Serono, we can expect further
milestone payments following the approval of tesamorelin; and once it is on the market, we will be
able to count on growing royalties and milestone payments tied to the achievement of certain sales
levels in the United States. All of this should allow us to maintain an adequate cash position to
move ahead with our current business plan.Q
    
    What do you envisage for Theratechnologies in 2010?A
    
    I am approaching 2010 full of optimism and confidence, convinced that it will be a truly
exceptional year for Theratechnologies! I envisage, and this goes without saying, achieving our
number one objective, the approval of tesamorelin leading to its commercialization in the United
States by EMD Serono. In so doing, Theratechnologies would find itself among the rare Canadian
companies that have successfully taken a molecule discovered in-house through all of the steps of
the drug development process. This achievement will mark the passage of Theratechnologies from a
research company to one focused on commercial growth.Q
    
    A few words in closing?A
    
    I want to recognize the exceptional work of all of the employees of Theratechnologies, which has
carried tesamorelin to where it is today. I would also like to thank our shareholders for their
patience and support over the past year. Theratechnologies is now on solid ground and the indices
are positive!




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Université de
Montréal Régie de lassurance maladie du Québec Conseil du médicament du
Québec.
 
 Autorité des marchés financiers




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st th th




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##### 








---



##### 



(in thousands of dollars, except per share amounts)
    
    2009
    
    
    2008*
    
    
    2007*Revenues
    
    $
    19,720
    
    
    $
    2,641
    
    
    $
    3,134Research and development before tax credits
    
    $
    22,226
    
    
    $
    35,326
    
    
    $
    31,866Operating loss before realized loss on
impairment
of available-for-sale financial assets
    
    $
    (15,058
    )
    
    $
    (48,033
    )
    
    $
    (37,611
    )Net loss
    
    $
    (15,058
    )
    
    $
    (48,611
    )
    
    $
    (37,668
    )Basic and diluted loss per share
    
    $
    (0.25
    )
    
    $
    (0.85
    )
    
    $
    (0.72
    )
 
 (in thousands of dollars)
    
    2009
    
    
    2008*
    
    
    2007*Liquidities (cash and bonds)
    
    $
    63,362
    
    
    $
    46,337
    
    
    $
    60,368Tax credits receivable
    
    $
    1,666
    
    
    $
    1,784
    
    
    $
    1,418Total assets
    
    $
    69,487
    
    
    $
    53,545
    
    
    $
    73,649Capital stock
    
    $
    279,169
    
    
    $
    269,219
    
    
    $
    238,842Shareholders equity
    
    $
    43,048
    
    
    $
    46,347
    
    
    $
    65,036
 
 *
    
    Information restated following the adoption of the Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3064, Goodwill and Intangible Assets.




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##### 



Adjusted net loss
 (in thousands of dollars)
    
    Fourth quarter
    
    
    Year2009
    
    
    2008*
    
    
    2009
    
    
    2008*Net loss, per the financial statements
    
    $
    (4,698
    )
    
    $
    (15,145
    )
    
    $
    (15,058
    )
    
    $
    (48,611
    )Adjustments:Revenues associated with a Collaboration and Licensing Agreement
(note 7 to the consolidated financial statements)
    
    
    (1,711
    )
    
    
    
    
    
    
    (17,444
    )
    
    
    Fees associated with a Collaboration and Licensing Agreement
    
    
    
    
    
    
    
    
    
    
    4,269
    
    
    
    Adjusted net loss
    
    $
    (6,409
    )
    
    $
    (15,145
    )
    
    $
    (28,233
    )
    
    $
    (48,611
    )
 Adjusted burn rate from operating activities before changes in operating assets and liabilities
 (in thousands of dollars)
    
    Fourth quarter
    
    
    Year2009
    
    
    2008*
    
    
    2009
    
    
    2008*Burn rate before changes in operating assets
and liabilities, per the financial statements
    
    $
    (4,333
    )
    
    $
    (9,559
    )
    
    $
    (13,547
    )
    
    $
    (41,592
    )Adjustments:Revenues associated with a Collaboration and Licensing Agreement
(note 7 to the consolidated financial statements)
    
    
    (1,711
    )
    
    
    
    
    
    
    (17,444
    )
    
    
    Fees associated with a Collaboration and Licensing Agreement
    
    
    
    
    
    
    
    
    
    
    4,269
    
    
    
    Adjusted burn rate before changes
in operating assets and liabilities
    
    $
    (6,044
    )
    
    $
    (9,559
    )
    
    $
    (26,722
    )
    
    $
    (41,592
    )
 
 *
    
    Information restated following the adoption of the CICA Handbook Section 3064,
Goodwill and Intangible Assets.




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---



##### 



Goodwill and Intangible Assets
 (in thousands of dollars, except per share amounts)
    
    
    
    
    
    
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2008Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1Revenues
    
    $
    2,246
    
    
    $
    13,148
    
    
    $
    2,317
    
    
    $
    2,009
    
    
    $
    616
    
    
    $
    710
    
    
    $
    716
    
    
    $
    599Net loss (net earnings)
    
    $
    (4,698
    )
    
    $
    5,824
    
    
    $
    (5,430
    )
    
    $
    (10,754
    )
    
    $
    (15,145
    )
    
    $
    (11,220
    )
    
    $
    (11,382
    )
    
    $
    (10,864
    )Basic and diluted loss (earnings) per share
    
    $
    (0.08
    )
    
    $
    0.10
    
    
    $
    (0.09
    )
    
    $
    (0.18
    )
    
    $
    (0.26
    )
    
    $
    (0.19
    )
    
    $
    (0.20
    )
    
    $
    (0.20
    )




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---



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---



##### 



Less than
    
    
    1 to 5
    
    
    Over(in thousands of dollars)
    
    Total
    
    
    1 year
    
    
    years
    
    
    5 yearsOperating lease
    
    $
    6,576
    
    
    $
    340
    
    
    $
    2,020
    
    
    $
    4,216
        A)
    
    SHAREHOLDER RIGHTS PLANOn February 10, 2010, the Companys Board of Directors adopted a shareholder rights plan
(the Plan), effective as of such date. The Plan is designed to provide adequate time for the
Board of Directors, and the shareholders, to assess an unsolicited takeover bid for
Theratechnologies. In addition, the Plan provides the Board of Directors with sufficient time
to explore and develop alternatives for maximizing shareholder value if a takeover bid is made,
as well as provide shareholders with an equal opportunity to participate in a takeover bid to
receive full and fair value for their common shares (the Common Shares). The Plan, if
approved by the shareholders, will expire at the close of the Companys annual meeting of
shareholders in 2013.The rights issued under the Plan will initially attach to and trade with the Common Shares and
no separate certificates will be issued unless an event triggering these rights occurs. The
rights will become exercisable only when a person, including any party related to it, acquires
or attempts to acquire 20% or more of the outstanding Common Shares without complying with the
Permitted Bid provisions of the Plan or without approval of the Board of Directors. Should
such an acquisition occur or be announced, 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.




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Under the 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.B)
    
    GRANTING OF STOCK OPTIONSOn December 8, 2009, the Company granted 265,000 options at an exercise price of $3.84 per
share and cancelled 19,167 options at a weighted exercise price of $2.38 per share in
connection with its stock option plan.




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##### 



(in thousands of Canadian dollars)
    
    November 30, 2009$US
    
    
    EUR
    
    
    GBPCash
    
    
    1,471
    
    
    
    
    
    
    
    Accounts receivable
    
    
    
    
    
    
    4
    
    
    
    Accounts payable and accrued liabilities
    
    
    (1,095
    )
    
    
    
    
    
    
    (25
    )Balance sheet elements exposed to foreign currency risk
    
    
    376
    
    
    
    4
    
    
    
    (25
    )
  Average
    
    
    Reportingrate
    
    
    date$US  $CAN
    
    
    1.0594
    
    
    
    1.0556EUR  $CAN
    
    
    1.5808
    
    
    
    1.5852GBP  $CAN
    
    
    1.7597
    
    
    
    1.7366
  (in thousands of Canadian dollars)
    
    $US
    
    
    EURO
    
    
    GBPIncrease net loss
    
    
    19
    
    
    
    
    
    
    
    (1
    )




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---



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Goodwill and intangible assets
 Goodwill and Intangible Assets Goodwill and Other
Intangible Assets Research and Development Costs




---



##### 



Inventories
 Inventories
 Credit risk and fair value of financial assets and financial liabilities
 Credit Risk and Fair Value of Financial Assets and Financial Liabilities
 Financial instruments  Disclosures
 Financial Instruments 
Disclosures Financial Instruments: Disclosures
  Business combinations, consolidated financial statements and non-controlling interests
 Business
Combinations Consolidated Financial Statements Non-controlling
Interests
 Business Combinations
 Consolidated and Separate Financial Statements




---



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International Financial Reporting Standards




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##### 



The commercial success of the Company depends largely on the development and commercialization of
tesamorelin; the failure by the Company to commercialize tesamorelin would have a material adverse
effect on the Company.
    
    
    receipt of regulatory approvals of
tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy
from the FDA and other regulatory agencies;
    
    market acceptance of the product by the medical
community, patients and third-party payers (such as governmental health administration
authorities and private health coverage insurers);
    
    entering into one or more strategic alliance
agreements with one or more partners or building a marketing and sales force in countries other
than the United States to help with the regulatory approval and/or the marketing and sale of
tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy
in those countries;
    
    in the United States, the amount of resources used by the Companys
commercial partner to commercialize tesamorelin;
    
    maintaining manufacturing and supply agreements
to ensure the availability of commercial quantities of tesamorelin through validated processes;
    
    the number of competitors in the market; and
    
    protecting the Companys intellectual property
and avoiding patent infringement claims.




---



##### 



The Company does not have the required regulatory approval to commercialize its products and cannot
guarantee that it will obtain such regulatory approval.




---



##### 



The Company has no control over the timing of the review of its NDA by the FDA.
   The Company is dependent on the Collaboration and Licensing Agreement for the commercialization of
tesamorelin for the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy
in the United States. This agreement places the commercialization of tesamorelin outside of its
control.
  
    
    the exact timing of the launch of tesamorelin in the United States, if approved by the FDA;
    
    the limited
control by the Company on the amount and timing of resources that its commercial partner will be
devoting to the commercialization, marketing and distribution of tesamorelin, which could
adversely affect the Companys ability to obtain or maximize its royalty payments;
    
    disputes or
litigation that may arise between the Company and its commercial partner, which could adversely
affect the commercialization of tesamorelin in the United States, all of which will divert the
attention of Companys Management and its resources;
    
    its commercial partner not properly
defending the Companys intellectual property rights or using them in such a way as to expose the
Company to potential litigation, which could, in both cases, adversely affect the value of the
Companys intellectual property rights;
    
    corporate reorganizations or changes in business
strategies of its commercial partner, which could adversely affect such commercial partners
willingness or ability to fulfill its obligations under the Collaboration and Licensing Agreement;
    
    the termination of the Collaboration and Licensing Agreement, which would adversely affect the
commercialization of tesamorelin for the treatment of excess abdominal fat in HIV-infected
patients with lipodystrophy in the United States.




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##### 



The Company relies on third parties for the manufacture and supply of tesamorelin and such reliance
may adversely affect the Company if the third parties are unable to fulfill their obligations.
   Market acceptance of the Companys products is uncertain and depends on a variety of factors, some
of which are not under the control of the Company.




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##### 




    
    acceptance of a product by physicians and patients as safe and effective
treatments;
    
    product price;
    
    the effectiveness of the Companys sales and marketing efforts (or those of its
commercial partners);
    
    storage requirements and ease of administration;
    
    dosing regimen;
    
    safety and efficacy;
    
    prevalence and severity of side effects; and
    
    competitive products.
 The Companys financial condition could be affected by the introduction of new regulations or
amendments to existing regulations.
  The Company must complete several preclinical and clinical studies for its products which may not
yield positive results and, consequently, could prevent it from obtaining regulatory approval.




---



##### 



The Company relies on third-party service providers to conduct its preclinical and clinical
studies and respond to the FDAs questions regarding the Companys NDA submission. The failure by
one of these third parties to comply with their obligations may delay the studies, have an adverse
effect on the Companys development program and/or delay the commercialization of tesamorelin for
the treatment of excess abdominal fat in HIV-infected patients with lipodystrophy.
    The conduct of clinical trials requires the enrollment of patients and difficulties in enrolling
patients could delay the conduct of the Companys clinical trials or result in their
non-completion.




---



##### 



The Companys capacity to generate revenues may be limited by governmental control over the pricing
of prescription drugs.
  The Company must enter into strategic alliance agreements with third parties for the sale and
marketing of its products and there is no guarantee that the Company will be able to achieve these
tasks.




---



##### 



The failure by the Company to protect its intellectual property may have a material adverse effect
on its ability to develop and commercialize its products.




---



##### 



The Companys commercial success depends, in part, on its ability not to infringe on third parties
patents and other intellectual property rights.
      The Company faces competition and the development of new products by other companies could
materially adversely affect the Companys business and its products.




---



##### 



The Companys business may be harmed if it is unable to manage its growth effectively.
   The Company depends on its 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 its business and growth potential.
  The Company is not profitable and may never achieve profitability.




---



##### 



The Company may require additional funding and may not be able to raise the capital necessary to
continue and complete the research and development of its products and their commercialization.
   The Company may not receive the full payment of all milestones or royalty payments pursuant to the
agreements entered into with third parties and, consequently, the financial condition and operating
results of the Company could be adversely impacted.
  The Company may not achieve its publicly announced milestones on time.




---



##### 



The outcome of scientific research is uncertain and the failure by the Company to discover new
products could slow down the growth of its portfolio of products.
  The development and commercialization of drugs could expose the Company to liability claims which
could exceed its insurance coverage.
  The Companys common share price is volatile and investors could lose money as a result of such
volatility.




---



##### 








---



##### 



(SIGNATURE)
    
    (SIGNATURE)YVES ROSCONI
    
    LUC TANGUAYPRESIDENT AND
    
    SENIOR EXECUTIVE VICE PRESIDENTCHIEF EXECUTIVE OFFICER
    
    AND CHIEF FINANCIAL OFFICERMONTRÉAL, CANADAFEBRUARY 10, 2010




---



##### 



*
    
    CA Auditor permit no. 14114




---



##### 



BALANCE SHEETS
 (in thousands of dollars)
    
    2009
    
    
    2008(restated  note 2A))AssetsCurrent assets:Cash
    
    $
    1,519
    
    
    $
    133Bonds
    
    
    10,036
    
    
    
    10,955Accounts receivable
    
    
    375
    
    
    
    610Tax credits receivable
    
    
    1,666
    
    
    
    1,784Inventories
    
    
    2,225
    
    
    
    Research supplies
    
    
    287
    
    
    
    301Prepaid expenses
    
    
    302
    
    
    
    39716,410
    
    
    
    14,180Bonds
    
    
    51,807
    
    
    
    35,249Property and equipment (note 4)
    
    
    1,229
    
    
    
    1,299Other assets (note 5)
    
    
    41
    
    
    
    2,817$
    69,487
    
    
    $
    53,545Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    5,901
    
    
    $
    7,198Current portion of deferred revenues (note 7)
    
    
    6,847
    
    
    
    12,748
    
    
    
    7,198Deferred revenues (note 7)
    
    
    13,691
    
    
    
    Shareholders equity:Capital stock (note 6)
    
    
    279,169
    
    
    
    269,219Contributed surplus
    
    
    6,484
    
    
    
    5,585Accumulated other comprehensive income
    
    
    1,282
    
    
    
    372Deficit
    
    
    (243,887
    )
    
    
    (228,829
    )(242,605
    )
    
    
    (228,457
    )Total shareholders equity
    
    
    43,048
    
    
    
    46,347Commitments (note 9)Subsequent events (note 15)$
    69,487
    
    
    $
    53,545
   (SIGNATURE)
    
    (SIGNATURE)PAUL POMMIER
    
    JEAN-DENIS TALONDIRECTOR
    
    DIRECTOR




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##### 



OF EARNINGS
 (in thousands of dollars, except per share amounts)
    
    2009
    
    
    2008(restated  note 2 A))Revenues:Royalties, technologies and other (note 7)
    
    $
    17,468
    
    
    $
    214Interest
    
    
    2,252
    
    
    
    2,42719,720
    
    
    
    2,641Operating costs and expenses:Research and development
    
    
    22,226
    
    
    
    35,326Tax credits
    
    
    (1,795
    )
    
    
    (2,111
    )20,431
    
    
    
    33,215General and administrative
    
    
    7,149
    
    
    
    6,185Selling and market development
    
    
    2,583
    
    
    
    3,811Patents, amortization and impairment of other assets (note 5)
    
    
    346
    
    
    
    5,239Fees associated with the strategic review process
    
    
    
    
    
    
    2,224Fees associated with the Collaboration and Licensing Agreement (note 7)
    
    
    4,269
    
    
    
    34,778
    
    
    
    50,674Operating loss before undernoted item
    
    
    (15,058
    )
    
    
    (48,033
    )Realized loss on impairment of available-for-sale financial assets (note 11 B))
    
    
    
    
    
    
    (578
    )Net loss
    
    $
    (15,058
    )
    
    $
    (48,611
    )Basic and diluted loss per share (note 6 C))
    
    $
    (0.25
    )
    
    $
    (0.85
    )Weighted average number of common shares outstanding
    
    
    60,314,309
    
    
    
    57,415,468
  OF COMPREHENSIVE LOSS
 (in thousands of dollars)
    
    2009
    
    
    2008(restated  note 2A))Net loss
    
    $
    (15,058
    )
    
    $
    (48,611
    )Unrealized gains on available-for-sale financial assets
    
    
    1,039
    
    
    
    133Reclassification adjustment for gains and losses
on available-for-sale financial assets (note 11 B))
    
    
    (129
    )
    
    
    572Comprehensive loss
    
    $
    (14,148
    )
    
    $
    (47,906
    )




---



##### 



OF SHAREHOLDERS EQUITY
 AccumulatedothercomprehensiveCapital stock
    
    
    Contributed
    
    
    income(in thousands of dollars)
    
    Number
    
    
    Dollars
    
    
    surplus
    
    
    (loss)
    
    
    Deficit
    
    
    TotalBalance, November 30, 2007
    
    
    54,531,133
    
    
    $
    238,842
    
    
    $
    4,807
    
    
    $
    (333
    )
    
    $
    (177,339
    )
    
    $
    65,977Changes in accounting policies (note 2 A))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (941
    )
    
    
    (941
    )Issuance of share capital (note 6)
    
    
    3,564,291
    
    
    
    29,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,899Share issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,938
    )
    
    
    (1,938
    )Exercise of stock options:Cash proceeds
    
    
    119,666
    
    
    
    397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    397Ascribed value
    
    
    
    
    
    
    81
    
    
    
    (81
    )
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    859
    
    
    
    
    
    
    
    
    
    
    
    859Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,611
    )
    
    
    (48,611
    )Change in unrealized gains and losses
on available-for-sale financial assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    705
    
    
    
    
    
    
    
    705Balance, November 30, 2008
    
    
    58,215,090
    
    
    
    269,219
    
    
    
    5,585
    
    
    
    372
    
    
    
    (228,829
    )
    
    
    46,347Issuance of share capital (note 6)
    
    
    2,214,303
    
    
    
    9,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,950Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    899
    
    
    
    
    
    
    
    
    
    
    
    899Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,058
    )
    
    
    (15,058
    )Change in unrealized gains and losses
on available-for-sale financial assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    910
    
    
    
    
    
    
    
    910Balance, November 30, 2009
    
    
    60,429,393
    
    
    $
    279,169
    
    
    $
    6,484
    
    
    $
    1,282
    
    
    $
    (243,887
    )
    
    $
    43,048




---



##### 



OF CASH FLOW
 (in thousands of dollars)
    
    2009
    
    
    2008(restated  note 2A))Cash flows from operating activities:Net loss
    
    $
    (15,058
    )
    
    $
    (48,611
    )Adjustments for:Amortization of property and equipment
    
    
    612
    
    
    
    625Amortization and impairment of other assets
    
    
    
    
    
    
    4,957Stock-based compensation
    
    
    899
    
    
    
    859Realized loss on impairment of available-for-sale financial assets
    
    
    
    
    
    
    578(13,547
    )
    
    
    (41,592
    )Changes in operating assets and liabilities:Interest receivable on bonds
    
    
    (923
    )
    
    
    405Accounts receivable
    
    
    260
    
    
    
    (134
    )Tax credits receivable
    
    
    118
    
    
    
    (366
    )Inventories
    
    
    (2,225
    )
    
    
    Research supplies
    
    
    2,765
    
    
    
    582Prepaid expenses
    
    
    95
    
    
    
    17Accounts payable and accrued liabilities
    
    
    (1,424
    )
    
    
    (1,324
    )Deferred revenues
    
    
    20,538
    
    
    
    19,204
    
    
    
    (820
    )5,657
    
    
    
    (42,412
    )Cash flows from financing activities:Share issuance
    
    
    9,950
    
    
    
    30,296Share issue costs
    
    
    (8
    )
    
    
    (1,930
    )9,942
    
    
    
    28,366Cash flows from investing activities:Additions to property and equipment
    
    
    (407
    )
    
    
    (301
    )Acquisition of bonds
    
    
    (29,111
    )
    
    
    (17,987
    )Disposal of bonds
    
    
    15,305
    
    
    
    29,889(14,213
    )
    
    
    11,601Net change in cash
    
    
    1,386
    
    
    
    (2,445
    )Cash, beginning of year
    
    
    133
    
    
    
    2,578Cash, end of year
    
    $
    1,519
    
    
    $
    133




---



##### 



1.
    
    Organization and business activities
 The Company, incorporated under Part 1A of the Québec Companies Act, is a Canadian
biopharmaceutical company that discovers and develops novel therapeutic products, with an
emphasis on peptides, for commercialization. The Company targets unmet medical needs in
financially attractive speciality markets where it can retain all or some of the whole or a
part of the commercial rights for its products.
 2.
    
    New accounting policies
 A)
    
    ADOPTION OF NEW ACCOUNTING STANDARDS
 Goodwill and intangible assets
 Effective with the commencement of its 2009 fiscal year, the Company adopted the Canadian
Institute of Chartered Accountants (CICA) Handbook Section 3064, Goodwill and
Intangible Assets, which will replace Section 3062, Goodwill and Other Intangible Assets,
and Section 3450, Research and Development Costs. The standard provides guidance on the
recognition of intangible assets in accordance with the definition of an asset and the
criteria for asset recognition, whether these assets are separately acquired or
internally developed. The impact of adopting this standard has been to increase the
opening deficit and to reduce other assets at December 1, 2007 and 2008 by $941 and $599,
respectively, which is the amount of patent costs related to periods prior to these
dates. Furthermore, following the adoption of this standard, patents and amortization of
other assets presented on the consolidated statements of earnings were reduced by $342
for the year ended November 30, 2008.InventoriesEffective with the commencement of its 2009 fiscal year, the Company adopted CICA Section
3031, Inventories, which replaces Section 3030 and harmonizes the Canadian standards
related to inventories with International Financial Reporting Standards (IFRS). This
Section provides changes to the measurement and more extensive guidance on the
determination of cost, including allocation of overhead; narrows the permitted cost
formulas; requires impairment testing; and expands the disclosure requirements to
increase transparency. As the Company had no inventories on November 30, 2008, the
adoption of this section had no impact on the Companys consolidated financial
statements.Credit risk and fair value of financial assets and financial liabilitiesOn January 20, 2009, the Emerging Issues Committee (EIC) of the Accounting Standards
Board (AcSB) issued EIC Abstract 173, Credit Risk and Fair Value of Financial Assets
and Financial Liabilities, which establishes that an entitys own credit risk and the
credit risk of the counterparty should be taken into account in determining the fair
value of financial assets and financial liabilities, including derivative instruments.
EIC 173 is applied retrospectively, without restatement of prior years, to all financial
assets and liabilities measured at fair value in the interim and annual financial
statements for periods ending on or after January 20, 2009. The adoption of EIC 173 did
not have an impact on the consolidated financial statements of the Company.




---



##### 



2.
    
    New accounting policies (continued)
 A)
    
    ADOPTION OF NEW ACCOUNTING STANDARDS (CONTINUED)
 Financial instruments  Disclosures
 In June 2009, the AcSB issued amendments to CICA Handbook Section 3862, Financial
Instruments  Disclosures, in order to align with IFRS 7, Financial Instruments:
Disclosures. This Section has been amended to include additional disclosure requirements
about fair value measurements of financial instruments and to enhance liquidity risk
disclosure. The amendments establish a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined as inputs
other than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own assumptions. The amendments apply
to annual financial statements relating to fiscal years ended after September 30, 2009 and
are applicable to the Company as at November 30, 2009. The amended section relates to
disclosure only and did not impact the financial results of the Company.
 B)
    
    FUTURE ACCOUNTING CHANGESBusiness combinations, consolidated financial statements and non-controlling interests
 The CICA issued three new accounting standards in January 2009: Section 1582, Business
Combinations, Section 1601, Consolidated Financial Statements, and Section 1602,
Non-controlling Interests. The Company is in the process of evaluating the requirements of
the new standards.
 Section 1582 establishes standards for the accounting for a business combination. It
provides the Canadian equivalent to IFRS 3  Business Combinations. The section applies
prospectively to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after January 1, 2011 and
early application is permitted.
 Section 1601 establishes standards for the preparation of consolidated financial
statements. Section 1602 establishes standards for accounting for a non-controlling
interest in a subsidiary in consolidated financial statements. It is equivalent to the
corresponding provisions of IFRS IAS 27  Consolidated and Separate Financial Statements,
Sections 1601 and 1602, and applies to interim and annual consolidated financial
statements relating to fiscal years beginning on or after January 1, 2011 and early
application is permitted.International Financial Reporting Standards
 In February 2008, Canadas AcSB confirmed that Canadian generally accepted accounting
principles, as used by publicly accountable enterprises, would be fully converged into
IFRS, as issued by the International Accounting Standards Board (IASB). The changeover
date is for interim and annual financial statements relating to fiscal years beginning on
or after January 1, 2011. As a result, the Company will be required to report under IFRS
for its 2012 interim and annual financial statements. The Company will convert to these
new standards according to the timetable set within these new rules. The Company will
determine at a future date the impact of adopting the standards on its consolidated
financial statements.




---



##### 



3.
    
    Significant accounting policies
 A)
    
    CONSOLIDATION
 The consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany transactions and balances have been eliminated.
 B)
    
    CASH EQUIVALENTS
 Cash equivalents are restricted to investments that are readily convertible into cash,
having a term to initial maturity not exceeding three months and whose value is not likely
to change significantly. As at November 30, 2009 and 2008, there were no cash equivalents.
 C)
    
    INVENTORIES
 Inventories are stated at the lower of first-in first-out cost or net realizable value.
Inventory costs include the purchase price and other costs directly related to the
acquisition of materials. 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.
 D)
    
    FINANCIAL ASSETS AND LIABILITIES
 All financial instruments are classified into one of the following five categories: held
for trading, held-to-maturity investments, loans and receivables, available-for-sale
financial assets or other financial liabilities. All financial instruments, including
derivatives, are included in the consolidated balance sheets and are measured at fair
market value, with the exception of loans and receivables, investments held-to-maturity
and other financial liabilities, which are measured at amortized cost. Subsequent
measurement and recognition of changes in fair value of financial instruments depend on
their initial classification. Held-for-trading financial investments are measured at fair
value and all gains and losses are included in net income in the period in which they
arise. Available-for-sale financial instruments are measured at fair value with
revaluation gains and losses included in other comprehensive income until the assets are
removed from the balance sheet or if there is an impairment in fair value of these assets
that is other than temporary.
 Derivative instruments are recorded as either assets or liabilities measured at their fair
value unless exempted from derivative treatment as a normal purchase and sale. Certain
derivatives embedded in other contracts must also be measured at fair value. All changes
in the fair value of derivatives are recognized in earnings unless specific hedge criteria
are met, which requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting.
 The Company has classified its bonds and investments in public companies as
available-for-sale financial assets and are measured at fair market value. The Company has
also classified accounts receivable as loans and receivables, and accounts payable and
accrued liabilities as other financial liabilities, and they are measured at amortized
cost.




---



##### 



3.
    
    Significant accounting policies (continued)
 E)
    
    PROPERTY AND EQUIPMENT
 Property and equipment are stated at cost. Amortization is provided using the following
methods and annual rates/periods:
 Asset
    
    Method
    
    
    Rate/periodComputer equipment
    
    Declining balance
    
    
    50
    %Laboratory equipment
    
    Declining balance and straight-line
    
    
    205 years
    %Office equipment and furniture
    
    Declining balance
    
    
    20
    %Leasehold improvements
    
    Straight-line
    
    Term of lease
 F)
    
    OTHER ASSETS
 Other assets consist namely of intellectual property and research supplies.
 Intellectual property is amortized over a period of 20 years using the straight-line method.
 Research supplies are purchased in advance in accordance with regulatory requirements to be
used in connection with the Companys clinical trials. Research supplies that are not expected
to be used within one year from the date of the balance sheet are classified as long-term.
 G)
    
    IMPAIRMENT OF LONG-LIVED ASSETS
 The Company reviews property and equipment and other long-term assets for impairment whenever
events or changes in circumstances indicate that the carrying value of property and equipment
or assets may not be recoverable. Recoverability of assets to be used is measured by the
comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated from the assets. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by which the
carrying value of the asset exceeds its fair value. The fair value against which the asset is
measured may be established based on comparable information or transactions, or any other
method of assessment.
 H)
    
    REVENUE RECOGNITION
 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. Revenues subject to the
achievement of milestones are recorded only when the specified events have occurred and
collectibility is assured.
 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.
 License fees are recorded when conditions and events under the license agreement have occurred
and collectibility is reasonably assured.
 Revenues from a collaboration agreement that includes multiple elements are considered to be a
revenue arrangement with multiple deliverables. 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. Payments received under the collaboration
agreement may include upfront payments, milestone payments, research contracts, license fees
and royalties. Revenues for each unit of accounting are recorded as described above.
 Interest income is recognized as earned using the effective interest method.




---



##### 



3.
    
    Significant accounting policies (continued)
 I)
    
    RESEARCH AND DEVELOPMENT
 Research expenditures, net of related research tax credits and grants, are charged to
earnings in the year in which they are incurred. Development expenditures, net of tax
credits, if any, are capitalized when they meet the appropriate criteria for
capitalization in accordance with generally accepted accounting principles. During the
years ended November 30, 2009 and 2008, no development expenditures were capitalized.
 J)
    
    STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS
 The Company records stock-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 is expensed
over the awards vesting period. Stock-based compensation related to non-employee stock
options is based on the fair value of the consideration received, or the fair value of the
equity instrument issued, whichever is more reliably measured.
 K)
    
    GOVERNMENT ASSISTANCE
 Government assistance, consisting of research tax credits and grants, is 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. Research tax credits are recorded when there is reasonable
assurance that they will be realized.
 L)
    
    FOREIGN EXCHANGE
 Foreign denominated monetary assets and liabilities are converted to Canadian dollars at
the rates of exchange prevailing at the balance sheet dates. Other assets and liabilities
are converted to the exchange rates prevailing when the assets were acquired or the
liabilities incurred. Revenues and expenses are converted at the rates prevailing at the
respective transaction date, except for depreciation and amortization which are converted
at the same rates as those used in the translation of the corresponding assets. Foreign
exchange gains and losses are included in the determination of net earnings or net loss.
 M)
    
    INCOME TAXES
 The Company uses the asset and liability method of accounting for income taxes. Future
income tax assets and liabilities are recognized in the balance sheet to account for the
future tax consequences attributable to temporary differences between the respective
accounting and taxable value of balance sheet assets and liabilities. As appropriate, a
valuation allowance is recognized to decrease the value of tax assets to an amount that is
more likely than not to be realized. Future income tax assets and income tax liabilities
are measured using income tax rates that are enacted or substantively enacted when the
asset is realized or the liability is settled. The effect of changes in income tax rates
is recognized in the year during which these rates change.
 N)
    
    EARNINGS PER SHARE
 The earnings per share are determined using the weighted average number of outstanding
shares during the year.
 The treasury stock method is used for the computation of the diluted earnings per share.
Under this method, a number of additional shares, if they are dilutive, are calculated
assuming that the outstanding stock options are exercised, and that the proceeds from the
transactions are used to purchase common shares at the average market price during the
period.




---



##### 



3.
    
    Significant accounting policies (continued)
 O)
    
    USE OF ESTIMATES
 The preparation of the financial statements in conformity with generally accepted
accounting principles 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. Significant areas requiring the use of Management estimates include
estimating the useful lives and recoverability of long-lived assets, including property
and equipment and other assets, estimating accruals for clinical trial expenses,
estimating stock-based compensation and revenue, as well as assessing the recoverability
of inventories, research tax credits and grants, investments and future income taxes.
Reported amounts and note disclosure reflect the overall economic conditions that are most
likely to occur and anticipated measures to be taken by Management. Actual results could
differ from those estimates.
 4.
    
    Property and equipment
 2009Accumulated
    
    
    Net bookCost
    
    
    amortization
    
    
    valueComputer equipment
    
    $
    874
    
    
    $
    617
    
    
    $
    257Laboratory equipment
    
    
    1,945
    
    
    
    1,519
    
    
    
    426Office equipment and furniture
    
    
    1,124
    
    
    
    701
    
    
    
    423Leasehold improvements
    
    
    1,854
    
    
    
    1,731
    
    
    
    123$
    5,797
    
    
    $
    4,568
    
    
    $
    1,229
 2008Accumulated
    
    
    Net bookCost
    
    
    amortization
    
    
    valueComputer equipment
    
    $
    682
    
    
    $
    500
    
    
    $
    182Laboratory equipment
    
    
    1,824
    
    
    
    1,427
    
    
    
    397Office equipment and furniture
    
    
    1,015
    
    
    
    700
    
    
    
    315Leasehold improvements
    
    
    1,846
    
    
    
    1,441
    
    
    
    405$
    5,367
    
    
    $
    4,068
    
    
    $
    1,299
 5.
    
    Other assets
 2009Accumulated
    
    
    Net bookCost
    
    
    amortization
    
    
    valueOther assets
    
    $
    41
    
    
    $
    
    
    
    $
    41




---



##### 



5.
    
    Other assets (continued)
 For the year ended November 30, 2009, research and development expenses include a charge of
$1,377 related to research supplies that were produced in order to obtain stability data and
to validate the production process as required by the U.S. Food and Drug Administration
(FDA).
 2008(Restated  note 2A))Accumulated
    
    
    Net bookCost
    
    
    amortization
    
    
    valueIntellectual property
    
    $
    7,670
    
    
    $
    7,670
    
    
    $
    Research supplies
    
    
    2,751
    
    
    
    
    
    
    
    2,751Other assets
    
    
    66
    
    
    
    
    
    
    
    66$
    10,487
    
    
    $
    7,670
    
    
    $
    2,817
 In 2008, the Company conducted an impairment test on the intellectual property included in Other
assets following a review of the development strategy by Management for new products. As a
consequence, the Company wrote off the carrying amount of this intellectual property. The write-off
of $4,571 is included in Patents, amortization and impairment of other assets in the consolidated
statements of earnings.
 6.
    
    Capital stock
 2009
    
    
    2008Authorized in unlimited number and without par value:Common sharesPreferred shares issuable in one or more seriesIssued:60,429,393 common shares (58,215,090 in 2008)
    
    $
    279,169
    
    
    $
    269,219
 2009Under the terms of the agreement with EMD Serono Inc. (EMD Serono), the Company issued 2,179,837
common shares for a cash consideration of $9,854 (see note 7).In 2009, the Company received subscriptions in the amount of $96 for the issuance of 34,466 common
shares in connection with its share purchase plan.2008On February 13, 2008, the Company completed a public offering for the sale and issue of 3,500,000
common shares for cash proceeds of $29,750. The issuance costs amounted to $1,938.In 2008, the Company received subscriptions in the amount of $149 for the issuance of 64,291 common
shares in connection with its share purchase plan.All shares were issued for a cash consideration.




---



##### 



6.
    
    Capital stock (continued)
 A)
    
    STOCK OPTION PLAN
 The Company has established a stock option plan under which it can grant to its Directors,
Officers, Employees, Researchers and Consultants non-transferable options for the purchase
of common shares. The exercise date of an option may not be later than 10 years after the
date it is granted. A maximum number of 5,000,000 options can be granted under the plan.
Generally, the options vest at the date of the grant or over a period of 0 to 5 years. On
November 30, 2009, 1,244,834 additional options could be granted by the Company.
 Changes in the number of options outstanding during the past two fiscal years were as
follows:
 Weighted averageexercise priceOptions
    
    
    per shareOptions as at November 30, 2007
    
    
    2,207,633
    
    
    $
    6.32Granted
    
    
    111,000
    
    
    
    7.98Exercised
    
    
    (119,666
    )
    
    
    3.32Cancelled
    
    
    (37,167
    )
    
    
    9.57Options as at November 30, 2008
    
    
    2,161,800
    
    
    
    6.52Granted
    
    
    680,500
    
    
    
    1.83Cancelled and expired
    
    
    (176,500
    )
    
    
    8.34Options as at November 30, 2009
    
    
    2,665,800
    
    
    $
    5.20
  Options outstanding

    
    
    
    Exercisable optionsWeightedaverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    remaining
    
    
    average
    
    
    Number of
    
    
    averageoptions
    
    
    life
    
    
    exercise
    
    
    exercisable
    
    
    exercisePrice range
    
    outstanding
    
    
    (years)
    
    
    price
    
    
    options
    
    
    price$1.20 - $2.00
    
    
    1,291,508
    
    
    
    7.57
    
    
    $
    1.71
    
    
    
    742,508
    
    
    $
    1.632.01 - 2.75
    
    
    141,459
    
    
    
    4.85
    
    
    
    2.59
    
    
    
    141,459
    
    
    
    2.592.76 - 3.75
    
    
    70,000
    
    
    
    6.51
    
    
    
    3.37
    
    
    
    43,333
    
    
    
    3.644.61 - 6.00
    
    
    25,000
    
    
    
    3.53
    
    
    
    5.43
    
    
    
    25,000
    
    
    
    5.436.01 - 9.00
    
    
    591,333
    
    
    
    5.76
    
    
    
    8.18
    
    
    
    526,977
    
    
    
    8.169.01 - 13.50
    
    
    495,000
    
    
    
    3.76
    
    
    
    10.72
    
    
    
    441,662
    
    
    
    10.6813.51 - 15.30
    
    
    51,500
    
    
    
    1.28
    
    
    
    15.15
    
    
    
    51,500
    
    
    
    15.152,665,800
    
    
    
    6.13
    
    
    $
    5.20
    
    
    
    1,972,439
    
    
    $
    5.92
 B)
    
    STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS
 The estimated fair value of the options granted was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average assumptions:
 2009
    
    
    2008Risk-free interest rate
    
    
    1.83
    %
    
    
    3.36
    %Volatility
    
    
    79.5
    %
    
    
    70.4
    %Average option life in years
    
    
    6
    
    
    
    6Dividend yield
    
    nil
    
    
    nil




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##### 



6.
    
    Capital stock (continued)
 B)
    
    STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS (CONTINUED)
 The risk-free interest rate is based on the implied yield on a Canadian Treasury
zero-coupon issue with a remaining term equal to the expected term of the option. The
volatility is based solely on historical volatility equal to the expected term of the
option. The average life of the options is estimated considering the vesting period, the
term of the option and the length of time similar grants have remained outstanding in the
past. Dividend yield was excluded from the calculation, since it is the present policy of
the Company to retain all earnings to finance operations and future growth.
 The following table summarizes the weighted average fair value of stock options granted
during the years ended November 30, 2009 and 2008:
 Number
    
    
    Weighted averageof options
    
    
    grant-date fair value2009
    
    
    680,500
    
    
    $
    1.262008
    
    
    111,000
    
    
    $
    5.16
 The Black-Scholes model, used by the Company to calculate option values, as well as other
accepted option valuation models, were developed to estimate the fair value of freely
tradable, fully transferable options without vesting restrictions, which significantly
differs from the Companys stock option awards. These models also require four highly
subjective assumptions, including future stock price volatility and expected time until
exercise, which greatly affect the calculated values.
 C)
    
    DILUTED LOSS PER SHARE
 Diluted loss per share was not presented as the effect of options would have been
anti-dilutive. All options outstanding at the end of the year could potentially dilute
basic earnings per share in the future.
 7.
    
    Collaboration and Licensing Agreement
 On October 28, 2008, the Company entered into a Collaboration and Licensing Agreement with EMD
Serono, an affiliate of 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).
Theratechnologies 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. The Company is also
responsible for product production and for the development of 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
(CAD$36,951) which, includes an initial payment of US$22,000 (CAD$27,097) and US$8,000
(CAD$9,854) as a subscription for common shares in the Company by Merck KGaA at a price of
US$3.67 (CAD$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 over its estimated
service period on a straight-line basis. This period may be modified in the future based on
additional information that may be received by the Company. For the year ended November 30,
2009, an amount of $6,560 related to this transaction was recognized as revenue. At November
30, 2009, the deferred revenues related to this transaction amounted to $20,537.




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##### 



7.
    
    Collaboration and Licensing Agreement (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
(CAD$10,884). This milestone payment has been recorded in the third quarter of 2009.
 The Company may conduct research and development for additional indications. Under the
Collaboration and Licensing Agreement, EMD Serono will 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 EMD Seronos agreement, to participate
in the promotion of the additional indications.
 8.
    
    Future income taxes
 Details of the components of income taxes are as follows:
 2009
    
    
    2008Net loss before income taxes
    
    $
    (15,058
    )
    
    $
    (48,611
    )Basic income tax rate
    
    
    30.9
    %
    
    
    31.0
    %Computed income tax provision
    
    
    (4,652
    )
    
    
    (15,069
    )Adjustments to income tax provision resulting from:Impact of decrease in federal tax rates:Decrease in value of future tax assets
    
    
    
    
    
    
    5,910Change in valuation allowance
    
    
    
    
    
    
    (5,910
    )Unrecorded potential tax benefit of current year
losses and other deductions
    
    
    4,029
    
    
    
    17,201Non-deductible items and others
    
    
    623
    
    
    
    (2,132
    )$
    
    
    
    $
    
 The tax incidence of temporary differences resulting in significant portions of future income tax assets is as follows:
 2009
    
    
    2008Future income tax assets:Losses carried forward
    
    $
    21,490
    
    
    $
    16,045Unused research and development expenses
    
    
    29,380
    
    
    
    26,591Property and equipment
    
    
    674
    
    
    
    544Share issue costs
    
    
    776
    
    
    
    1,174Intellectual property and patent fees
    
    
    12,307
    
    
    
    16,248Available deductions and other
    
    
    4,187
    
    
    
    4,18368,814
    
    
    
    64,785Less valuation allowance
    
    
    (68,814
    )
    
    
    (64,785
    )Net future income tax asset
    
    $
    
    
    
    $
    
 In estimating the realization of future income tax assets, Management considers whether a portion
or all future tax assets are more likely than not to be realized. Realization of future tax assets
is subject to the generation of future taxable income.




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##### 



8.
    
    Future income taxes (continued)
 As at November 30, 2009, the Company had available the following deductions, losses and
credits:
 Federal
    
    
    ProvincialResearch and development expenses, without time limitation
    
    $
    103,346
    
    
    $
    115,686Losses carried forward, until:2014
    
    $
    9,603
    
    
    $
    2015
    
    
    275
    
    
    
    2027
    
    
    7,638
    
    
    
    7,6282028
    
    
    46,316
    
    
    
    46,2712029
    
    
    21,785
    
    
    
    18,802$
    85,617
    
    
    $
    72,701Unused tax credits expiring in:2023
    
    $
    5592024
    
    
    1,5972025
    
    
    1,8632026
    
    
    2,1782027
    
    
    3,0002028
    
    
    3,3282029
    
    
    2,250$
    14,775
 Federal
    
    
    ProvincialShare issue costs
    
    $
    2,732
    
    
    $
    2,732Excess of tax value of intellectual property
and patent fees over carrying value
    
    
    45,735
    
    
    
    45,718Excess of tax value of property and equipment over carrying value
    
    
    3,121
    
    
    
    1,785




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##### 



9.
    
    Commitments
 A)
    
    RENTAL OF PREMISES
 The Company rents premises under an operating lease (the Lease) expiring in April 2010.
The Lease was renewed by the Company and the lessor during the 2009 financial year for a
period of 11 years ending April 30, 2021. Under the terms of the Lease, the Company has
also been granted two renewal options for periods of five years each. The minimum payments
required under the terms of the Lease are as follows:
 2010
    
    $
    3402011
    
    
    552012
    
    
    6552013
    
    
    6552014
    
    
    6552015
    
    
    273Thereafter
    
    
    3,943$
    6,576
 The Company has committed to pay the lessor for its share of some operating expenses of the
leased premises. This amount has been set at $240 for the year beginning May 1, 2010 and will
be increased by 2.5% annually for the duration of the Lease.
 The lessor will provide the Company an amount of $728 to allow it to undertake leasehold
improvements.
 The Company has issued an irrevocable letter of credit in favour of the lessor in the amount of
$323 which will be cancelled April 30, 2010 under the terms of the Lease renewal, along with a
first rank movable mortgage in the amount of $1,150 covering all the Companys tangible assets
located in the rented premises. This mortgage, however, can be subordinated to those of lending
institutions.B)
    
    LONG-TERM SUPPLY AGREEMENTS
 During and after the year ended November 30, 2009, the Company entered into long-term
procurement agreements with third-party suppliers in anticipation of the commercialization of
tesamorelin. Some of these agreements stipulate an obligation to purchase minimum quantities of
product, subject to certain conditions.C)
    
    CREDIT FACILITY
 The Company has a credit facility available in the amount of $1,800, bearing interest at prime
plus 0.5% and secured by bonds. Under 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, the Company will provide the bank with a first rank movable hypothec of
$1,850 on securities judged satisfactory by the bank.
 As at November 30, 2009 and 2008, with the exception of the letter of credit mentioned in A)
above, the credit facility available to the Company was not utilized.




---



##### 



10.
    
    Licenses
 In addition to the exclusively held products, the Company has certain exclusive licenses to
market or commercialize intellectual property from research activities assigned to certain
research institutions. Under these licenses, the Company is committed to pay royalties on the
net sales of the products commercialized by the Company, or, if applicable, on the amounts
received from sub-license, subject to the application of the clauses of such agreements.
 11.
    
    Supplemental information
 A)
    
    STATEMENT OF CASH FLOWS
 The following transactions were conducted by the Company and did not impact cash flows:
 2009
    
    
    2008(Restated  note 2A))Additions to property and equipment included in accounts payable and accrued liabilities
    
    $
    183
    
    
    $
    48Share issue costs included in accounts payable and accrued liabilities
    
    
    
    
    
    
    8
 B)
    
    In 2009, the Company reclassified under net earnings an amount of $129 in realized gains on available-for-sale financial
assets previously recorded in accumulated other comprehensive income.In 2008, the Company reclassified under net earnings an amount of $572 in realized losses on available-for-sale financial
assets previously recorded in accumulated other comprehensive income. The realized loss includes an impairment loss of
$578 related to a decline in value that is other than temporary for stock options held in a publicly-traded company.On November 30, 2009, the accumulated other comprehensive income was composed of unrealized gains on available-for-sale financial assets of $1,282 (gain of $372 on November 30, 2008).C)
    
    The Company received tax credits of $
1,912 in 2009 ($1,746 in 2008).D)
    
    The following items were included in the determination of the Companys net loss:
 2009
    
    
    2008(Restated  note 2A))Amortization of property and equipment
    
    $
    612
    
    
    $
    625Amortization and impairment of other assets (note 5)
    
    
    
    
    
    
    4,957Stock-based compensation
    
    
    899
    
    
    
    859




---



##### 



12.
    
    Capital disclosures
 The Companys objective in managing capital is to ensure a sufficient liquidity position to
finance its research and development activities, general and administrative expenses, working
capital and overall capital expenditures, including those associated with patents. The Company
makes every attempt to manage its liquidity to minimize shareholder dilution.To fund its activities, the Company has followed an approach that relies almost exclusively on
the issuance of common equity, as well as proceeds and royalties from technologies following
the closing of the transaction disclosed in note 7. Since inception, the Company has financed
its liquidity needs primarily through public offerings of common shares and private
placements. When possible, the Company tries to optimize its liquidity position by
non-dilutive sources, including investment tax credits, grants, interest income as well as
proceeds and royalties from technologies.The Companys policy is to maintain a minimum level of debt. The Company has a line of credit
of $1,800 for its short-term financing needs. As at November 30, 2009, this line of credit has
not been used, with the exception of the letter of credit mentioned in note 9A).The capital management objectives remain the same as for the previous fiscal year.At November 30, 2009, cash and bonds amounted to $63,362 and tax credits receivable amounted
to $1,666, for a total of $65,028. The Company believes that its cash position will be
sufficient to finance its operations and capital needs for the next year.The Companys general policy on dividends is to retain cash to keep funds available to finance
the Companys growth.The Company is not subject to any externally imposed capital requirements.




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##### 



13.
    
    Financial risk management
 This note provides disclosures relating to the nature and extent of the Companys exposure to
risks arising from financial instruments, including credit risk, liquidity risk, foreign
currency risk and interest rate risk, and how the Company manages those risks.
 A)
    
    CREDIT RISK
 Credit risk is the risk of an unexpected loss if a customer or counterparty to a
financial instrument fails to meet its contractual obligations. The Company regularly
monitors the credit risk exposure and takes steps to mitigate the likelihood of these
exposures resulting in losses.
 Financial instruments other than cash that potentially subject the Company to significant
credit risk consist principally of bonds. The Company invests its available cash in fixed
income instruments from governmental, paragovernmental and municipal bonds ($60,384 as at
November 30, 2009) as well as from corporations with high credit ratings ($1,459 as at
November 30, 2009). As at November 30, 2009, the Company was not exposed to any credit
risk over the carrying amount of the bonds.
 B)
    
    LIQUIDITY RISK
 Liquidity risk is the risk that the Company will not be able to meet its financial
obligations as they fall due. The Company manages liquidity risk through the management
of its capital structure and financial leverage, as outlined in note 12. It also manages
liquidity risk by continuously monitoring actual and projected cash flows. The Board of
Directors and/or the Audit Committee reviews and approves the Companys operating and
capital budgets, as well as any material transactions out of the ordinary course of
business.
 The Company has adopted an investment policy in respect of the safety and preservation of
its capital to ensure the Companys liquidity needs are met.
 The instruments are selected with regard to the expected timing of expenditures and
prevailing interest rates. Bonds mature during the following fiscal years: $10,036 in
2010, $15,446 in 2011, $19,716 in 2012, $13,791 in 2013 and $2,854 in 2014.
 The following are the contractual maturities of financial liabilities, as well as the
payments required under the terms of the operating lease, as at November 30, 2009:
 Carrying
    
    
    Less than
    
    
    1 to
    
    
    More thanTotal
    
    
    amount
    
    
    1 year
    
    
    5 years
    
    
    5 yearsAccounts payable and accrued liabilities
    
    $
    5,901
    
    
    $
    5,901
    
    
    $
    5,901
    
    
    $
    
    
    
    $
    Operating lease
    
    
    6,576
    
    
    
    
    
    
    
    340
    
    
    
    2,020
    
    
    
    4,216$
    12,477
    
    
    $
    5,901
    
    
    $
    6,241
    
    
    $
    2,020
    
    
    $
    4,216




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##### 



13.
    
    Financial risk management (continued)
 C)
    
    FOREIGN CURRENCY RISK
 The Company is exposed to the financial risk related to the fluctuation of foreign
exchange rates and the degree of volatility of those rates. Foreign currency risk is
limited to the portion of the Companys business transactions denominated in currencies
other than the Canadian dollar, primarily revenues from royalties, technologies and other
expenses for research and development incurred in US dollars, euros and pounds sterling
(GBP). The Company does not use derivative financial instruments to reduce its foreign
exchange exposure.
 The Company manages foreign exchange risk by maintaining US cash on hand to support US
forecasted cash outflows for a maximum 12-month period. The Company does not currently
view its 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 the consolidated statement of earnings to vary from period to
period and not necessarily correspond to those forecasted in operating budgets and
projections. Additional earnings variability arises from the translation of monetary
assets and liabilities denominated in currencies other than the Canadian dollar at the
rates of exchange at each balance sheet date, the impact of which is reported as foreign
exchange gain or loss in the consolidated statement of earnings. Given the Companys
policy on the management of foreign currencies, a sudden change in foreign exchange rates
would not impair or enhance its ability to pay its US dollar denominated obligations.
 The following table provides significant items exposed to foreign exchange as at November
30, 2009:
 November 30, 2009(in thousands of Canadian dollars)
    
    US$
    
    
    EURO
    
    
    GBPCash
    
    
    1,471
    
    
    
    
    
    
    
    Accounts receivable
    
    
    
    
    
    
    4
    
    
    
    Accounts payable and accrued liabilities
    
    
    (1,095
    )
    
    
    
    
    
    
    (25
    )Balance sheets elements exposed
to foreign currency risk
    
    
    376
    
    
    
    4
    
    
    
    (25
    )
  ReportingAverage rate
    
    
    date rateNovember 30, 2009
    
    
    November 30, 2009US$  CAD$
    
    
    1.0594
    
    
    
    1.0556EUR  CAD$
    
    
    1.5808
    
    
    
    1.5852GBP  CAD$
    
    
    1.7597
    
    
    
    1.7366
  (in thousands of Canadian dollars)
    
    US$
    
    
    EURO
    
    
    GBPIncreased in net loss
    
    
    19
    
    
    
    
    
    
    
    (1
    )




---



##### 



13.
    
    Financial risk management (continued)
 D)
    
    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.
 Short-term bonds of the Company are invested at fixed interest rates and mature in the
short-term. Long-term bonds are also instruments that bear interest at fixed rates. The
risk that the Company will realize a loss as a result of a decline in the fair value of
its bonds is limited because these investments, although they are available for sale, are
generally held to maturity. The unrealized gains or losses on bonds are recorded in the
accumulated other comprehensive income (loss).
 Based on the value of the Companys short and long-term bonds at November 30, 2009, an
assumed 0.5% decrease in market interest rates would have increased the fair value of
these bonds and the accumulated other comprehensive loss by $620; 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. Accounts receivable, accounts payable and accrued
liabilities bear no interest.
 Based on the value of variable interest-bearing cash during the year ended November 30,
2009 ($5,800), an assumed 0.5% increase in interest rates during such period would have
increased the future cash flow and decreased the net loss by $29; an assumed decrease of
0.5% would have had an equal but opposite effect.
 14.
    
    Financial instruments
 A)
    
    CARRYING VALUE AND FAIR VALUE
 The Company has determined that the carrying values of its short-term financial assets and
liabilities, including cash, accounts receivable, as well as accounts payable and accrued
liabilities, approximate their fair value because of the relatively short period to
maturity of the instruments.
 Bonds and investments in public companies are stated at estimated fair value, determined
by inputs that are directly observable (Level 2 inputs).
 B)
    
    INTEREST INCOME AND EXPENSES
 Interest income consists of interest earned on cash and bonds.
 C)
    
    LOSS ON EXCHANGE
 General and administrative expenses include a loss on foreign exchange of $635 for the
year ended November 30, 2009 (loss of $247 in 2008).




---



##### 



15.
    
    Subsequent events
 A)
    
    SHAREHOLDER RIGHTS PLAN
 On February 10, 2010, the Board of Directors of the Company adopted a shareholder rights
plan (the Plan), effective as of such date. The Plan is designed to provide adequate
time for the Board of Directors, and the shareholders, to assess an unsolicited takeover
bid for Theratechnologies. In addition, the Plan provides the Board of Directors with
sufficient time to explore and develop alternatives for maximizing shareholder value if a
takeover bid is made, as well as provide shareholders with an equal opportunity to
participate in a takeover bid to receive full and fair value for their common shares (the
Common Shares). The Plan, if approved by the shareholders, will expire at the close of
the Companys annual meeting of shareholders in 2013.
 The rights issued under the Plan will initially attach to and trade with the Common Shares
and no separate certificates will be issued unless an event triggering these rights
occurs. The rights will become exercisable only when a person, including any party related
to it, acquires or attempts to acquire 20% or more of the outstanding Common Shares
without complying with the Permitted Bid provisions of the Plan or without approval of
the Board of Directors. Should such an acquisition occur or be announced, 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 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.
 B)
    
    GRANTING OF STOCK OPTIONS
 On December 8, 2009, the Company granted 265,000 options at an exercise price of $3.84 per
share and cancelled 19,167 options at a weighted exercise price of $2.38 per share in
connection with its stock option plan.
 16.
    
    Comparative figures
 Certain of the 2008 comparative figures have been reclassified to conform with the financial
statement presentation adopted in 2009.




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##### 








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##### 








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##### 



2310 ALFRED-NOBEL BLVD
MONTRÉAL, QUÉBEC, CANADA H4S 2B4
Telephone: 514 336-7800
Fax: 514 336-7242
www.theratech.com
    
    (IMAGE)