DiagnoCure Decreases Operating Expenses After Q1 Restructuring
Highlights of the Quarter
The roll out of the PCA3 test continues. Gen-Probe, DiagnoCure's exclusive sub-licensee for diagnostic applications of the PCA3 gene, announced in May 2006 the commercial availability of the PCA3 assay at two US laboratories. This past quarter, Gen-Probe signed on a third US laboratory to distribute the test, MOD Lab of Dallas, Texas, and confirmed that it is in discussions with additional US based laboratories to provide reagents (ASRs) for use in a laboratory-developed PCA3 test. In early November 2006, after receiving the European CE Mark for their PCA3 prostate cancer test, Gen-Probe completed the first phase of its European launch in six laboratory sites across Europe. Additional labs will be offering the test in planned phases over the coming months. Gen-Probe has also initiated clinical research studies at seven prestigious European universities. Given the recent release of the assay, there is not yet any developed sales pattern for the Gen-Probe PCA3 test so it is difficult to predict what any quarter to quarter future royalty revenue flow will accrue to DiagnoCure. However, with the assay now commercially available in both the US and Europe, each quarter DiagnoCure is receiving increased royalty revenues.
Overall ImmunoCyt(TM) / uCyt+(TM) sales decreased in the first quarter of 2007 from that of 2006. In line with the decision to focus on molecular diagnostics, during the past quarter the Company discontinued support of research and development activities related to product improvements in its bladder cancer product and also reduced the marketing activities related to this product. As a result, DiagnoCure reduced staff in research and development, sales and marketing and administrative support relating to this product. These restructuring actions resulted in a non-recurring charge of $912,685 in the quarter. This announcement follows the decision last November to also discontinue financial support for SAMBA, the Company's subsidiary in France, which had been developing automation software for the bladder cancer test. DiagnoCure believes ImmunoCyt(TM) / uCyt+(TM) can thrive in a cytology environment, and the Company is actively searching for a strong outside partner to facilitate the continued growth of the product, while ensuring that customers continue to receive quality products, technical support and services during the transition.
Also, during the quarter, DiagnoCure continues to review of a number of new lung cancer markers obtained from Gen-Probe. DiagnoCure is refining the direction of its lung cancer program, including exploring additional applications of these molecular markers for lung cancer detection using testing medium such as blood, sputum, or biopsy materials. The search for new markers and potential partners and acquisitions continued during the past quarter with the objective of bringing innovative methods for the detection and management of cancer to patients and their physicians.
Results for the First Quarter of Fiscal 2007
Total revenues for the first quarter of 2007 were $1,176,577 compared with $1,405,313 for the first quarter of 2006. Revenue recognition of the continued calendar payments from Gen-Probe were $772,668 for the period, up $33,561 from the prior year due to a favourable US to Canadian exchange rates. Sales of DiagnoCure's non-invasive bladder cancer test, ImmunoCyt(TM) / uCyt+(TM), were $81,912 for the first quarter of 2007 versus $102,642 for the same period a year ago. There were no sales of uPM3(TM) by DiagnoCure in the first quarter of 2007. In mid 2006, DiagnoCure had withdrawn its uPM3(TM) test from the market when Gen-Probe began to sell their version of the PCA3 test. Sales of DiagnoCure developed uPM3(TM) ASR prostate cancer test for the first quarter of 2006 were $165,429. Income from research and development contracts, predominantly with Gen-Probe, has decreased in 2007 by $67,901 as specific contracted R&D projects are completed. Also in this quarter, DiagnoCure sold clinical samples to Gen-Probe, in support of their prostate cancer testing R&D, for an amount of $38,036 compared to $66,656 in the first quarter of 2006.
Cost of sales decreased $104,519 from $188,981 for the first quarter of 2006 to $84,462 for the first quarter of 2007. This decrease is related to lower actual product sales, as noted above, for ImmunoCyt(TM) / uCyt+(TM) and uPM3(TM). Interest income, was relatively stable at $196,295 for the first quarter of 2007 compared to $192,991 for the first quarter of 2006. DiagnoCure invests its surplus cash in secure interest bearing instruments.
Operating expenses from continuing operations, before stock-based compensation and restructuring charges, dropped from $2,579,139 for the first quarter of 2006 to $2,181,685 for the same period in 2007, a decrease of $397,454 (15%), reflecting early cost savings from the restructuring noted above. Total operating expenses for the first quarter, including the non-cash charge for stock-based compensation and restructuring charges were $3,549,595 compared to $2,862,532 in 2006, primarily as a result of the following:
- Research and development expenses, net of investment tax credits, decreased by $384,684, from $1,107,418 for the first quarter of 2006 to $722,734 for the same quarter in 2007. The decrease in research and development expenses is in line with the decision to focus on molecular diagnostics and to discontinue supporting the activities to improve the bladder cancer product. As a result, DiagnoCure reduced staff in research and development. - General and administrative expenses decreased, from $559,019 for the first quarter of 2006 to $487,702 for the same quarter in 2007. This decrease of $71,317 is attributable a reduction in professional fees and reduced staff following the restructuring action. - Selling and business development expenses increased by $52,224 from $812,266 for the first quarter of 2006 to $864,490 for the same quarter in 2007. This increase is attributable to the on-going execution of our business plan to support our efforts to identify and conclude new potential strategic alliances, acquisitions and in-licensing agreements. - Non-recurring restructuring charges in the first quarter of 2007 were $912,685. As noted above, these charges related to the shift in business strategy, including the decision to discontinue supporting R&D activities related to improvements in its cell-based bladder cancer diagnostic test and a reduction in marketing initiatives for this product. This decision resulted in a realignment of resources to support the new strategy, with changes in the requisite skills of Company researchers and a reduction in the number of employees supporting certain research and development projects, including related marketing and administrative positions. - Stock-based compensation expenses, a non-cash charge, increased by $171,832, from $283,393 for the first quarter of 2006 to $455,225 for the same period in 2007. This increase is attributable to the grant, in late 2006 of 575,000 options outside the plan to the new CEO. The impact of this grant represents a $255,593 charge for this quarter. The disclosure of this non-cash item was initiated in 2005 to comply with the new accounting regulation. (See below, Stock-Based Compensation).
Based on the above, for the first quarter of 2007, DiagnoCure recorded a net loss before stock-based compensation and restructuring charges of $1,089,570 compared to $1,362,807 for the same period of 2006. The net loss from continuing operations was $2,457,480 or $0.07 per share for the first quarter of 2007, compared with $1,646,200, or $0.05 per share, for the first quarter of 2006. These results were substantially in line with management expectations and reflect activities undertaken during the quarter in line with our plans and DiagnoCure's on-going commitment to develop testing platforms for the detection and management of cancer. Further, the first quarter also reflects the initial steps taken to focus our vision on molecular diagnostics.
First Quarter Results (Unaudited) 2007 2006 $ $ ------------------------------------------------------------------------- Sales 137,025 334,726 Revenue under research and license agreement 843,257 877,596 Interest 196,295 192,991 ------------------------------------------------------------------------- Total revenues 1,176,577 1,405,313 ------------------------------------------------------------------------- Cost of sales (84,462) (188,981) ------------------------------------------------------------------------- Gross margin 1,092,115 1,216,332 ------------------------------------------------------------------------- Operating expenses (before stock-based compensation and restructuring charges) 2,181,685 2,579,139 ------------------------------------------------------------------------- Net loss (before stock-based compensation and restructuring charges) (1,089,570) (1,362,807) ------------------------------------------------------------------------- Restructuring charges 912,685 - Stock-based compensation 455,225 283,393 ------------------------------------------------------------------------- Net loss from continuing operations (2,457,480) (1,646,200) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net Profit (Loss) from discontinued operations - (52,448) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net loss (2,457,480) (1,698,648) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted profit (loss) per share From continuing operations (0.07) (0.05) From discontinued operations - (0.00) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted loss per share (0.07) (0.05) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding 34,462,537 34,358,256 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total Assets and Shareholders' Equity At the end of the quarter, cash, short-term investments and long-term investments stood at $17,243,629, down from $18,319,194 as at October 31, 2006. This decrease of $1,075,565 is due to the use of cash to finance our operating activities this past quarter. Management is satisfied that it has adequate cash resources to execute its business plan in the near-term and mid-term. Total assets amounted to $19,897,379 as of January 31, 2007, compared with $21,347,421 as of October 31, 2006. The book value per Common Share is $0.51 as of January 31, 2007 compared to $0.57 as of October 31, 2006. Balance Sheet (Unaudited) As of January 31 2007 2006 $ $ ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total assets before discontinued operations 19,897,379 26,563,066 ------------------------------------------------------------------------- Assets related to discontinued operations - 547,246 ------------------------------------------------------------------------- Total assets 19,897,379 27,110,312 ------------------------------------------------------------------------- Shareholders' equity 17,737,429 23,990,725 ------------------------------------------------------------------------- Number of common shares outstanding 34,478,009 34,369,310 -------------------------------------------------------------------------
About DiagnoCure
DiagnoCure specializes in the development, production and commercialization of molecular diagnostics for the detection and management of cancer. Its first test, ImmunoCyt(TM) / uCyt+(TM) for bladder cancer, is distributed worldwide. In 2003, the Company entered into a strategic alliance with Gen-Probe (NASDAQ: GPRO - News) for the development and commercialization of a second generation PCA3-based diagnostic test for prostate cancer. This test is now available in analyte specific reagent (ASR) format in the U.S. as well as in Europe with full CE Mark. The Company plans to expand its product portfolio, namely in prostate, lung and other cancers. In addition to its own research, the Company intends to acquire or in-license promising cancer biomarkers from both academic and commercial institutions. Additional information can be found at www.diagnocure.com.
Forward-looking statements
This release contains forward-looking statements that involve known and unknown risks, uncertainties and assumptions that may cause actual results to differ materially from those expected. By their very nature, forward-looking statements are based on expectations and hypotheses and also involve risks and uncertainties, known and unknown, many of which are beyond DiagnoCure's control. As a result, investors are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements regarding the outcome of research and development projects, and future revenues, and future savings from restructuring are based on management expectations. In addition, the reader is referred to the applicable general risks and uncertainties described in DiagnoCure's most recent Annual Information Form under the heading "Risk Factors". DiagnoCure undertakes no obligation to publicly update or revise any forward-looking statements contained herein.
Source: DIAGNOCURE INC.