Hemosol Announces Third Quarter Financial Results

TORONTO, Nov. 9 /PRNewswire-FirstCall/ - Hemosol Corp. today announced financial results and review of operations for the third quarter ended September 30, 2005. Unless otherwise stated, all dollar amounts presented herein are in Canadian dollars.

During the quarter the Company successfully: - Scaled-up the Cascade to meet the requirements for clinical trial activity and completed the design of the Cascade's secondary processes which are key to both clinical and commercial activity; - Established excellent working relationships with potential key customers for Cascade products; and - Received FDA guidance in two key areas - the Company established the regulatory path for its planned IGIV product that would have put it on track to file an Investigational New Drug application ("IND") for a phase III clinical trial in April 2006. Hemosol also obtained clear directions on the development of its second generation hemoglobin- based oxygen carrier that would put the Company on track for the necessary pre-clinical studies in support of an IND for a phase I clinical trial; and - Advanced discussions with several potential partners and investors for the development of its pipeline products, notably its drug delivery technology and a monoclonal antibody-based therapy intended for the treatment of Epo, non-responsive anemia.

"While the third quarter was a period of significant technical and operational success it has been a major disappointment in terms of securing the financial resources the company needs to realize its potential," said Lee Hartwell, President and CEO of Hemosol. "Despite significant uncertainty surrounding the Company's immediate future, our belief in the commercial potential of our therapeutic protein initiative and our portfolio of pipeline products is stronger than ever. We have conducted numerous runs of the Cascade technology and the results have consistently exceeded our expectations. Similarly, there have been significant advances in our pipeline which bodes well for the licensing, partnering and independent funding discussions underway."

Both during the third quarter and subsequent to quarter-end, the Company held several discussions with potential investors in connection with its proposed private placement financing but no commitments have been obtained to date. The Company has also held discussions with several parties in connection with potential strategic transactions but no commitments have been obtained to date. No assurance can be given that the Company will be able to complete any such transactions given its current financial resources. The Company requires additional capital shortly to continue as a going concern. The Company is now in discussions with its secured creditors with respect to its current financial position.

In order to preserve cash and extend the Company's ability to continue to seek a financing or strategic transaction, it issued layoff notices to approximately two thirds of its staff on October 28, 2005. As a result, the final achievement dates for the milestones advanced during the quarter are uncertain. The Company's reduced workforce and limited resources have also caused Hemosol to suspend the provision of bio-manufacturing services to third parties and, accordingly, the Company and Organon Canada Ltd. reached a mutual agreement to terminate the Manufacturing and Supply Agreement dated September 24, 2004. This termination is effective immediately and was implemented without additional cost or penalty to either party.

Financial Results

All amounts reflect the post-consolidation Common Share numbers and post-consolidation Common Share price unless otherwise noted.

For the quarter ended September 30, 2005 the Company had a net loss of $6.1 million or ($0.35) per share, compared with a net loss for the quarter ended September 30, 2004 of $3.6 million or ($0.25) per share. Included in this quarter's results were spending related to the Supply Agreement with Organon, amortization of non-cash deferred charges of $0.2 million related to ?nancing costs and additional depreciation of $1.0 million as a result of the Company starting to amortize the technical equipment it deemed available for use in the first quarter of 2005. These costs were partially offset by the recording of minority interest of $0.5 million, as a result from the 7% partnership interest held by LPBP Inc. in Hemosol LP and $0.4 million of revenue related to the Supply Agreement with Organon. The net loss for the quarter ended September 30, 2004 included non-cash stock based compensation expenses of $1.4 million offset by the reversal of a future tax liability of $2.0 million related to the April 2004 Plan of Arrangement primarily as a result of accumulated tax losses.

Total operating expenses increased from $5.6 million for the quarter ended September 30, 2004 to $5.7 million for the quarter ended September 30, 2005 an increase of $0.1 million, bringing operating expenses for the nine months ended September 30, 2005 to $18.0 million compared with $13.6 million for the same period in the prior year. This increase for the nine month period results from the recording of an additional $3.1 million in depreciation for the technical equipment that is now deemed available for use for increased bio-manufacturing initiatives, specifically related to the Supply Agreement with Organon, and increased activity in support of the issuance of the Establishment License by Health Canada which occurred on June 30, 2005.

As of September 30, 2005 the Company had $0.8 million of cash and cash-equivalents. During the quarter, the Company received approximately $1 million which was released from an escrow account established as part of the Plan of Arrangement completed on April 30, 2004.

Scientific and process development expenses increased from $3.3 million for the quarter ended September 30, 2004, to $4.3 million for the quarter ended September 30, 2005, an increase of $1.0 million. This brought scientific and process development expenses for the nine months ended September 30, 2005 to $13.9 million compared to $7.9 million for the same period in the prior year. This increase was mainly due to increased activity related to the Company's bio-manufacturing initiatives, specifically related to the Supply Agreement with Organon and costs related to the requisite validation and licensing of the Meadowpine Facility by Health Canada. Included in this amount is additional depreciation of approximately $3.1 million for the technical equipment that is now deemed available for use.

Regulatory and clinical expenses decreased from $0.4 million for the quarter ended September 30, 2004 to $0.2 million for the quarter ended September 30, 2005, a decrease of $0.2 million. This brought regulatory and clinical expense for the nine months ended September 30, 2005 to $0.8 million compared with $1.0 million for the same period in the prior year. These costs represent routine baseline regulatory and clinical support activities.

Administration expenses decreased from $1.4 million for the quarter ended September 30, 2004 to $1.2 million for the quarter ended September 30, 2005, a decrease of $0.2 million. This brought administration expenses for the nine months ended September 30, 2005 to $2.6 million compared to $3.6 million for the same period in the prior year. This decrease was due primarily to lower stock-based compensation expense of $1.0 million in the current period.

Marketing and business development expenses decreased slightly for the quarter ended September 30, 2005, a decrease of $0.4 million. This brought marketing and business development expenses for the nine months ended September 30, 2005 to $0.7 million compared with $0.6 million for the same period in the prior year. This increase primarily resulted from increased activity for business development costs associated with the bio-manufacturing initiative and partnering activities related to the drug development pipeline.

Notes to Financial Statements to Follow:

The statements included with this release should be read in conjunction with the applicable notes, which can be found on the Company's website at www.hemosol.com.

About Hemosol

Hemosol is an integrated biopharmaceutical developer and manufacturer of biologics, particularly blood-related protein based therapeutics.

For more information visit Hemosol's website at www.hemosol.com.

The Common Shares are listed on the NASDAQ Stock Market under the trading symbol "HMSL" and on the TSX under the trading symbol "HML".

Certain statements concerning Hemosol's future prospects are "forward- looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and other applicable securities legislation. There can be no assurances that future results will be achieved, and actual results could differ materially from forecasts and estimates. Important factors that could cause actual results to differ materially from forecasts and estimates include, but are not limited to: Hemosol's ability to successfully implement the Cascade technology and commercialize products derived from that technology; Hemosol's ability to obtain additional financing which is critical to the implementation of the Cascade technology and to Hemosol's continued viability as a going concern; Hemosol's ability to obtain regulatory approvals for its products; Hemosol's ability to successfully complete clinical trials for its products; Hemosol's ability to enter into satisfactory arrangements for the supply of materials used in its manufacturing operations and the sale of resulting products to customers; technical, manufacturing or distribution issues; the competitive environment for Hemosol's products and services; the degree of market penetration of Hemosol's products; Hemosol's ability to attract and retain clients for its bio-manufacturing services; the risk that Hemosol may not become profitable; and other factors set forth in filings with Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission. These risks and uncertainties, as well as others, are discussed in greater detail in the filings of Hemosol with Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission. Hemosol makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made.

Hemosol Corp. (A development stage company)(Incorporated under the laws of Ontario) CONSOLIDATED STATEMENTS OF BALANCE SHEETS (unaudited and not reviewed by the Company's external auditors.) See Note 2 - Going Concern Uncertainty September 30 December 31 2005 2004 (in thousands of dollars) $ $ ------------------------------------------------------------------------- ASSETS Current Cash and cash equivalents 815 4,230 Cash held in escrow (note 7) - 1,000 Prepaids and other assets 499 366 Inventory 1,817 1,329 ------------------------------------------------------------------------- Total current assets 3,131 6,925 ------------------------------------------------------------------------- Property, plant and equipment, net (note 3) 78,986 83,104 Patents and trademarks, net 1,081 1,164 License technology, net (note 4) 8,607 5,022 Deferred charges, net (note 5) 1,211 177 ------------------------------------------------------------------------- Total other assets 89,885 89,467 ------------------------------------------------------------------------- 93,016 96,392 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities 2,850 2,538 Short-term portion of convertible note (note 8c) 350 - Short-term debt (note 8d) - 20,000 ------------------------------------------------------------------------- Total current liabilities 3,200 22,538 ------------------------------------------------------------------------- Long-term debt (note 8d) 20,000 - Convertible note (note 8c) 3,862 - Minority interest 3,734 5,163 ------------------------------------------------------------------------- Total long term liabilities 27,596 5,163 ------------------------------------------------------------------------- Total liabilities 30,796 27,701 ------------------------------------------------------------------------- Shareholders' equity Common shares (notes 4 and 8a,b) 320,294 311,711 Equity portion related to convertible note (note 8c) 1,453 - Warrants and options (notes 6 and 8a,b,c) 16,427 14,080 Contributed surplus 9,125 9,125 Deficit (285,079) (266,225) ------------------------------------------------------------------------- Total shareholders' equity 62,220 68,691 ------------------------------------------------------------------------- 93,016 96,392 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes On behalf of the Board: Edward E. McCormack Lee Hartwell Chairman Director and Chief Executive Officer Hemosol Corp. (A development stage company)(Incorporated under the laws of Ontario) CONSOLIDATED STATEMENTS OF LOSS (unaudited and not reviewed by the Company's external auditors.) See Note 2 - Going Concern Uncertainty Three months ended Nine months ended September 30 September 30 (in thousands of dollars 2005 2004 2005 2004 except per share data) $ $ $ $ ------------------------------------------------------------------------- REVENUE Product sales 372 - 372 - EXPENSES Cost of goods sold 216 - 216 - Research and development Scientific and process (note 3) 4,083 3,298 13,652 7,855 Regulatory and clinical 234 354 809 1,007 Administration 1,183 1,446 2,640 3,614 Marketing and business development 240 284 690 597 Support services 141 224 466 485 Foreign currency translation (gain) loss (28) (3) (90) 6 ------------------------------------------------------------------------- Loss from operations 5,697 5,603 18,011 13,564 Amortization of deferred charges (note 5) 225 115 818 1,823 Interest income (5) (44) (65) (128) Interest expense 394 242 1,084 746 Net gain on Arrangement - - - (6,838) Accretion in carrying value of convertible note (note 8c) 211 - 385 - ------------------------------------------------------------------------- Loss before minority interest and income taxes 6,522 5,916 20,233 9,167 Minority interest (461) (424) (1,429) (680) Provision for (recovery of) income taxes Current 20 50 50 150 Future - (1,946) - (2,975) ------------------------------------------------------------------------- Net loss for the period 6,081 3,596 18,854 5,662 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted loss per share 0.35 0.25 1.14 0.40 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding (000's) 17,590 14,286 16,604 14,123 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes CONSOLIDATED STATEMENTS OF DEFICIT (unaudited) Three months ended Nine months ended September 30 September 30 2005 2004 2005 2004 (in thousands of dollars) $ $ $ $ ------------------------------------------------------------------------- Deficit, beginning of period 278,998 258,143 266,225 253,177 Net loss for the period 6,081 3,596 18,854 5,662 Distribution - - - 2,900 ------------------------------------------------------------------------- Deficit, end of period 285,079 261,739 285,079 261,739 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes Hemosol Corp. (A development stage company)(Incorporated under the laws of Ontario) CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and not reviewed by the Company's external auditors.) See Note 2 - Going Concern Uncertainty Three months ended Nine months ended September 30 September 30 2005 2004 2005 2004 (in thousands of dollars) $ $ $ $ ------------------------------------------------------------------------- OPERATING ACTIVITIES Net loss for the period (6,081) (3,596) (18,854) (5,662) Add (deduct) items not involving cash Amortization of property, plant and equipment 1,457 536 4,581 1,646 Amortization of license technology 165 100 415 187 Amortization of patents and trademarks 27 28 83 98 Amortization of deferred charges 225 115 818 1,823 Stock-based compensation 120 1,411 304 2,464 Accretion in carrying value of convertible note (note 8d) 211 - 385 - Future income taxes - (1,946) - (2,975) Minority interest (461) (424) (1,429) (680) Net gain on arrangement - - - (6,838) Foreign currency translation (gain) loss - 3 - (6) ------------------------------------------------------------------------- (4,337) (3,773) (13,697) (9,943) Net change in non-cash working capital balances related to operations 348 369 (311) (1,630) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash used in operating activities (3,989) (3,404) (14,008) (11,573) ------------------------------------------------------------------------- ------------------------------------------------------------------------- INVESTING ACTIVITIES Patents and trademark costs - - - (4) Purchase of property, plant and equipment (8) (169) (463) (424) Purchase of license technology - - (1,070) (1,502) Proceeds from Arrangement, net of transaction cost - - - 12,898 Purchase of short term investments - 6,965 - - ------------------------------------------------------------------------- Cash provided by (used in) investing activities (8) 6,796 (1,533) 10,968 ------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds on issuance of common shares, warrants and options (note 8b) - - 6,118 180 Issuance of convertible debentures (note 8c) - - 5,633 - Increase in deferred charges - - (625) - Proceeds from bulge facility (note 8d) - - 500 - Payment of bulge facility (note 8d) - - (500) - Cash released from escrow 1,000 - 1,000 448 ------------------------------------------------------------------------- Cash provided by financing activities 1,000 - 12,126 628 ------------------------------------------------------------------------- Effect of exchange rates on cash and cash equivalents - (3) - 6 ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents during the period (2,997) 3,389 (3,415) 29 Cash and cash equivalents, beginning of period 3,812 4,765 4,230 8,125 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 815 8,154 815 8,154 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying notes

Hemosol Corp.

CONTACT: Jason Hogan, Investor & Media Relations, (416) 361-1331,800-789-3419, (416) 815-0080 fax, ir@hemosol.com, www.hemosol.com; Torequest a free copy of this organization's annual report, please go tohttp://www.newswire.ca and click on Tools for Investors.

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