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Cellegy Pharmaceuticals Announces Third Quarter 2005 Financial Results

Published: Nov 15, 2005

HUNTINGDON VALLEY, Pa., Nov. 15 /PRNewswire-FirstCall/ -- Cellegy Pharmaceuticals, Inc. today reported its financial results for the third quarter ended September 30, 2005.

Net loss for the quarter ended September 30, 2005 was $2,793,000 or $0.09 per basic and diluted common share based on 29,832,000 weighted average common shares. Cellegy had a net loss of $3,143,000 or $0.14 per basic and diluted common share during the same period in 2004. Cellegy's cumulative net loss for the nine month period in 2005 was $3,044,000 or $0.11 per basic and diluted common share compared to a net loss of $8,909,000 or $0.43 per common share during the same period last year.

Revenues for the quarters ended September 30, 2005 and 2004 were $1,952,000 and $483,000, respectively. For the quarter ended September 30, 2005, revenues consisted of $471,000 in Rectogesic(R) (nitroglycerin ointment) product sales, and $1,252,000 in research grant revenues and a $200,000 milestone from the launch of Tostrex(R) in Sweden by ProStrakan, the Company's European marketing partner. Prior year revenues for the same period consisted primarily of $170,000 in sales in Australia, $92,000 in skin care product sales, and $208,000 in licensing revenue. 2004 results did not include Biosyn, which was acquired by Cellegy in October 2004.

Revenues for the nine months ended September 30, 2005 and 2004 were $11,307,000 and $1,251,000, respectively. Licensing revenues of $6,988,000 included $6.5 million of revenue from the settlement of the Company's litigation with PDI, Biosyn research grant revenues of $3.4 million and product sales of $899,000. Prior year results included $638,000 of licensing revenue and $613,000 in product sales.

Research and development expenses for the quarters ended September 30, 2005 and 2004 were $1,816,000 and $2,529,000, respectively. Expenses for the third quarter included Biosyn expenses of approximately $1.6 million incurred in connection with the manufacture of clinical testing supplies and other research activities relating to the development of its HIV products. The overall increase was partly offset by reduced clinical activities relating to Cellegesic and Fortigel of $1.2 million. At the parent level, Cellegy did not have significant research expenses in the third quarter of 2005.

Research and development expenses for the nine months ended September 30, 2005 and 2004 were $6,877,000 and $6,876,000 respectively. The current year results include Biosyn's research and clinical manufacturing expenses for its HIV product candidates of approximately $4.4 million. This was partly offset by a $2,690,000 decrease in Cellegy's clinical costs and other related expenses resulting from a wind down in clinical activities relating to Cellegesic and Fortigel in 2005. Other related decreases include $488,000 in research salaries due to the curtailment of research for these products. The prior year also includes a $750,000 milestone payment to Neptune Pharmaceuticals relating to acquired research.

Selling, general and administrative expenses for the quarters ended September 30, 2005 and 2004 were $2,575,000 and $1,093,000, respectively. The increase of $1,482,000 consisted primarily of Biosyn expenses of $290,000, which was not a component of Cellegy's results for the comparable period of last year, increases in salaries including officer severance expenses, consulting expenses, the accrual of retention bonuses to employees incurred in connection with the planned closure of the California office and other facility wind down expenses. California personnel previously engaged in research or development have now focused their efforts on the management of the Company's manufacturing activities, product commercialization or other administrative functions. As a result, expenses related to these employees are classified as SG&A.

Selling, general and administrative expenses during the nine months ended September 30, 2005 and 2004 were $7,050,000 and $3,520,000, respectively. The $3,530,000 increase includes $1.1 million relating to Biosyn. The remaining increase of $2,351,000 was attributable to increases of $1.2 million in legal fees due to the PDI litigation, $700,000 in other professional and consulting fees and $1,187,000 in severance payments and retention accruals. The Company announced in the third quarter of 2005 the relocation of its headquarters to its Biosyn facility in Pennsylvania. The accrual of severance and retention payments to employees was incurred in connection with the planned closure of the California location which is expected to be completed in the first quarter of 2006. The overall increase in expenses was partly offset by the receipt of the sublease termination fee of $1,090,000 and a decrease in rent expense.

The Company had cash and cash equivalents of $2.3 million at September 30, 2005 compared to $8.7 million at December 31, 2004. Cash used in operations during the first nine months of 2005 was $12.2 million as compared to $8.4 million during the same period in the prior year. The $3.8 million increase in the use of cash in operations in 2005 was due primarily to the settlement of PDI's lawsuit and its associated legal costs, officer severance expenses and the inclusion of Biosyn in Cellegy's 2005 consolidated results. The use of cash for the first nine months of 2005 was partially offset by approximately $5.7 million in net proceeds from the May 2005 private placement and approximately $1.0 million received from Vaxgen as part of the sublease termination agreement.

Due to its cash position and negative operating cash flows, Cellegy received a going concern qualification in the report of its independent registered public accounting firm included in the Annual Report on Form 10-K for the year ended December 31, 2004. The Company's plans, with regard to its cash position, include raising additional required funds through one or more of the following options, among others: seeking partnerships with other pharmaceutical companies to co-develop and fund research and development efforts, pursuing additional out-licensing arrangements with third parties, re-licensing and monetizing future milestone and royalty payments expected from existing licensees and seeking equity or debt financing. However, there is no assurance that any of these options will be implemented on a timely basis or that the Company will be able to obtain additional financing on acceptable terms. In addition to these options, Cellegy will continue to implement further cost reduction programs and reduce discretionary spending, if necessary, to meet its obligations.

About Cellegy

Cellegy Pharmaceuticals is a specialty biopharmaceutical company that develops and commercializes prescription drugs for the treatment of women's health care conditions, including reduction in the transmission of HIV and sexual dysfunction, as well as, gastrointestinal disorders.

In October 2004, Cellegy acquired Biosyn, Inc., a privately held biopharmaceutical company in Huntingdon Valley, Pennsylvania. The addition of Biosyn, a leader in the development of novel microbicide gel products for contraception and the reduction in transmission of HIV in women, expands Cellegy's near term product pipeline and complements Cellegy's women's health care focus. Cellegy believes that Savvy(R) (C31G vaginal gel), currently undergoing Phase 3 clinical studies in the United States and Africa, is one of the most clinically advanced products in development for the reduction in transmission of HIV.

Cellegesic(TM) (nitroglycerin ointment), branded Rectogesic outside the United States, is approved in the United Kingdom for the treatment of pain associated with chronic anal fissures. A similar formulation of Rectogesic is currently being sold in Australia, New Zealand, Singapore and South Korea. Fortigel, branded Tostrex outside the United States, for the treatment of male hypogonadism, was approved by the Medical Products Agency (MPA) in Sweden in December 2004. ProStrakan, is the exclusive distributor of Tostrex in Sweden and the European Union. Approvals of Rectogesic and Tostrex by the other member states of the European Union will be pursued by ProStrakan through the Mutual Recognition Procedure.

In April 2005, the Company submitted a written response to the FDA containing new analyses of data from its Cellegesic Phase 3 trials. The FDA, which had previously issued a Non Approvable Letter for Cellegesic in December 2004, indicated that it would issue a response to the Company on or around June 15 concerning the results of its analysis of the data. While the Company as of this date has received no such response, the Company has maintained discussions with the FDA and understands that the NDA continues to be under review and the review is nearing completion.

Forward-Looking Statements

This press release contains forward-looking statements. Investors are cautioned that these forward-looking statements are subject to numerous risks and uncertainties, known and unknown, which could cause actual results and developments to differ materially from those expressed or implied in such statements. Such risks and uncertainties relate to, among other factors: the need to obtain required additional funding, the timing and outcome of clinical trials, including the reduction in transmission of HIV and contraception Phase 3 trials for Savvy. In addition, there is no certainty as to the timing and outcome of discussions with the FDA, particularly regarding additional requirements for clinical trials and marketing approval of Cellegesic, or the Company's ability to complete corporate partnerships and additional financings.

Readers are cautioned not to place undue reliance on forward-looking statements, and we undertake no obligation to update or revise statements made herein. For more information regarding risk factors, refer to the Company's Annual Report on Form 10-K for the year ending December 31, 2004, and to its other Securities and Exchange Commission filings.

CELLEGY PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Revenues $1,952 $483 $11,307 $1,251 Costs and expenses: Cost of product sales 237 55 320 131 Research and development 1,816 2,529 6,877 6,876 Selling, general and administrative 2,575 1,093 7,050 3,520 Total costs and expenses 4,628 3,677 14,246 10,527 Operating loss (2,676) (3,194) (2,939) (9,276) Other income and (expense) (118) 51 (105) 367 Net income (loss) applicable to common stockholders $(2,793) $(3,143) $(3,044) $(8,909) Net income (loss) per common share: Basic and diluted $(0.09) $(0.14) $(0.11) $(0.43) Basic and diluted shares 29,832 22,396 28,048 20,874 CELLEGY PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands) September 30, December 31, 2005 2004 Assets Cash (1) $2,305 $8,932 Other assets 4,154 4,931 Total assets $6,459 $13,863 Liabilities and Stockholders' Deficit Current liabilities (2) $8,678 $5,613 Other liabilities 2,306 14,993 Total liabilities 10,984 20,606 Stockholders' deficit (4,525) (6,743) Total liabilities and stockholders' deficit $6,459 $13,863 (1) Includes restricted cash of $227,000 at December 31, 2004. (2) Includes $4.9 million of notes payable classified as current in 2005

Cellegy Pharmaceuticals, Inc.

CONTACT: Robert J. Caso, Vice President, Finance & CFO, +1-215-914-0900,ext. 603, or Richard C. Williams, Chairman and Interim CEO,+1-650-616-2200, both of Cellegy Pharmaceuticals, Inc.

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